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Christine Wahlig
Attorney at law
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Marketing Manager

Spotlights

Managing director or employee?

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While in some jurisdictions managing directors are always employees, this is not necessarily the case under German law. If an individual has only the job title “managing director”, they are usually employees. However, the status can be different if “managing director” is not a mere job title but if the individual is registered in the German commercial register as company’s organ of a GmbH (a German company with limited liability).

The status of a managing director of a GmbH and the question if employment law applies for such a managing director too, can be difficult to assess. The following summary gives you a brief overview on the most relevant legal aspects of the classification of a registered managing director of a GmbH:

When is a managing director of a GmbH regarded as employee?

The starting point for the classification is the term “employee”, which is defined slightly differently in national and European law. This leads to different answers to the question whether or not a managing director of a GmbH is regarded as employee.

According to the German Civil Code it is characteristic of employees that they provide services and are bound by instructions. Managing directors who are at the same time the majority shareholder of a GmbH or are its minority shareholder but have a blocking minority are not bound by instructions. They are not deemed to be employees according to the definition of the German Civil Code.

However, managing directors of a GmbH who are not at the same time their shareholder are bound by instructions of the shareholders’ meeting. Nevertheless under German law, such managing directors are usually only deemed to be employees in exceptional cases.

However, according to the case law of the European Court of Justice the fact that managing directors (who are not at the same time a majority shareholder of the company) are bound by instructions from the shareholders’ meeting is sufficient to classify a managing director of a GmbH as employee. In practice, this has to be taken into account when a specific regulation is based on European law.

Therefore, managing directors (who are not who are not at the same time a majority shareholder of the company) are deemed to be employees with regard to the Maternity Protection Act, the regulation on mass layoffs as well as the General Equal Treatment Act.

While for example the German Act on Working Time and the Federal Vacation Act are also based on European law, it has not yet been finally decided if these acts also apply for managing directors of a GmbH (if they are not at the same time a majority shareholder of the company).

Which courts are responsible?

In addition to the aforementioned matter, the question of the correct legal procedure often arises when disputes occur between the company and the managing director. Since the labor court procedure offers some advantages over the civil court procedure (such as no deposit of a court costs advance, in the first instance no responsibility for the costs of the opposite party if one loses  case), there is often an interest to sue in the labor courts. However, they are generally not responsible for legal disputes arising from the relationship between a GmbH and its managing director. However, this effect does not apply if the appointment of the managing director have been revoked already. In this case, the labor court might be responsible.

Are GmbH managing directors subject to social security obligations?

Under social security law, it should be noted that the managing director of GmbH who is not at the same a majority shareholder of the company is considered to be an employee and, therefore, subject to social security contributions.

Can an employment relationship also exist with a managing director of a GmbH?

Irrespective of the applicability of employment and social law regulations to a GmbH’s managing director, the question often arises as to whether an inactive employment relationship of the managing director still exists. This is particularly relevant to the question whether the managing director enjoys protection against dismissal like employee do. This depends always on the circumstances of each individual case, in particular whether a managing director’s contract has been signed which expressly or impliedly terminated any early employment contract.

In a nutshell

As there is no general answer to the question if a managing director of a GmbH is deemed to be an employee and if employment law applies, a review in each individual case is recommendable. 

By Katrin Scheicht and Annika Kißener

Katrin Scheicht

Katrin Scheicht specializes in restructurings, corporate transactions and business transfers.

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