Dismissal of a managing director under Dutch law

In the Netherlands the position of the director under the articles of association (in Dutch: “statutair directeur”) differs from the position of a “regular” employee.

The director under the articles of association does not enjoy the same employment protection against dismissal as a regular employee. This has to do with fact that a director has a dual (corporate and an employment) relationship with the company.

A managing director (member of the Management Board) is director under the articles of association in case he/she is appointed by the authorized body of the company to appoint and dismiss directors. In most cases this body is the General Meeting of Shareholders.

The General Meeting of Shareholders is authorized to appoint, suspend or dismiss the director under the articles of association at any moment, by taking a shareholders resolution. The particular rules for convening a shareholders meeting should be taken into account. This procedure is listed in the articles of association of the company. If this procedure is validly taken, also the employment agreement (if any) will in principle be terminated after the valid corporate dismissal, since regular employment law on dismissal is not applicable on directors under the articles of association. No prior permission by a court or Employee Insurance Agency (in Dutch: ‘’UWV’’) is necessary. Although the reason for termination is not assessed by a third party on forehand, there must be a reasonable ground for dismissal. Also, a reasonable notice term must be observed and in some cases a prearranged severance payment must be paid. There are a few exceptions to this rule, such as illness of the director, or in case parties have agreed otherwise.

The director has got two options to contest a decision for dismissal. The director can i) file for annulment of the decision of the General Meeting of Shareholders (if for instance the rules for convening a shareholders meeting are not duly applied) or ii) he could request the cantonal court to grant him an entitlement to a fair compensation (in Dutch: ‘’billijke vergoeding’’). The cantonal court will grant this compensation if it is in the opinion that there was no reasonable ground for dismissal. The cantonal court cannot recover the employment agreement. Therefore, the end of the employment is certain. In most cases parties settle a case and arrange for a compensation package by mutual consent beforehand (notice period, exit-clause).

Sometimes, the director appears to be an employee (not a director under the articles of association) within another company. In this case the employer might be required to dismiss the employee separately in accordance with the regular employment dismissal procedures. In the Netherlands, the rules on dismissal of employees are rather strict. The employment agreement can only be terminated after approval of the UWV or by the cantonal court.

For further questions concerning the dismissal of a director, proper application of corporate dismissal rules, the exit clause etc., please contact  the employment law attorneys of Blenheim here.