In how many relationships are you involved?

Very recently we advised a major shareholder who wanted to dismiss a director of one of his companies. A difficult case, because the director in question was also one of the company’s employees. The shareholder came to us to ask what conditions the dismissal had to meet.

If a director is also an employee, two different relationships exist in parallel, namely the relationship that arises at the moment the person concerned is appointed as director under the articles of association, and the relationship that arises by concluding the employment contract.

Company law provides for considerable freedom in dismissal cases; every director may be suspended or dismissed by the party who is authorized to make the appointment. In other words, the shareholders may decide at any time to dismiss the director.

However, since the director in question also has an employment contract, he is protected against dismissal just as any other employee. An employment contract may be terminated only for reasons laid down by law, and only if there is no possibility to reassign the employee concerned. Contrary to the rules that apply to normal employees, however, the dismissal of a director does not need to be submitted first to the Employee Insurance Agency (UWV) or the subdistrict court.

How do these rules relate to each other? What should you be aware of if you are considering dismissing the director of your company? And what can you, as director, do to make your position as strong as possible?

In principle, both the rules that apply to terminating an employment contract and the rules that apply to dismissing a director under the articles of association must be complied with. In addition, the starting point is that both legal relationships are terminated at the same time. The employment relationship ends by the dismissal of the director by the shareholders and vice versa.

In order to terminate an employment contract, first there must be a reasonable ground as laid down in the law. With the dismissal of a director, a difference of opinion regarding the policy to be pursued is the most common reason used. Although this is accepted fairly readily, a reasonable case needs to be presented. However, the shareholders do have to try and reassign the director concerned to another position within the organization. If this is not possible, the company will be required to make the usual transition payment. If the employment contract is not terminated in the proper manner, the director will also be entitled to additional compensation.

A valid resolution of shareholders is required to dismiss a director under the articles of association. All the requirements for convening and holding a shareholders’ meeting must be followed. That means, amongst other things, that the director himself must be consulted concerning the intended resolution. In order to enable the director to give a meaningful opinion, he must be informed of the grounds for dismissal. The final resolution for dismissal must state all the relevant facts and circumstances for the dismissal, because otherwise it will be uncertain whether they can be put forward during any court proceedings arising from the dismissal.

So, there is much to be aware of, and we haven’t covered everything here by any means. All the more reason to put your affairs in order beforehand by drawing up the right agreements between the right parties. We would be pleased to help you with this, in order to avoid endless argument and extra costs afterwards.