The Federal Supreme Court has stopped discriminating dismissals of CEOs (managing directors)

Created by Stephanie Breitenbach | |  Labor Law

CEOs represent the employer and are therefore not classified as employee and thus are not protected against discriminating dismissal – OR? Time and again courts have to deal with various contexts of the question whether CEOs can invoke employment protection rights. Overall there is no unanimous opinion on this question. Now the Federal Supreme Court has clarified, that third-party CEOs – that hold no shares in the company – are protected against discriminating dismissals by the General Equal Treatment Act (GETA/AAG) (ruling dated 26 March 2019, reference II ZR 244/17). In this respect they are to be classified as employees according to article 6 sec. 1 sent. 1 no. 1 GETA.

The claim was filed by man who was appointed as a third-party CEO of a GmbH at the age of fifty. The contract that was initially limited to a period of five years was mutually prolonged several times; the last time for a further five years ending August 2018. According to the agreed on contract either party had the first-time right to terminate the limited contact with a notice period of six month to the year’s end once the CEO turned 61. As the CEO was already relieved of his duties in 2015, he was dismissed in June 2016 (at the age of 61) with effect as of 31 December 2016 referring to the contractual termination clause, although the managing director contract would have only ended on 31 August 2018.

The claiming CEO holds the view, that the contractual termination clause as well as the dismissal as such are age discriminating and thus ineffective. Neither in the First nor in the Second Instance the claim was successful. However, the Higher Regional Court believed, that the high demands that are connected to the career of an employed manager might justify a retirement age under the statutory retirement age.

However, the subsequent revision to the Federal Supreme Court was successful. The decision of the Higher Regional Court was reversed and the claim was referred back to the Higher Regional Court. According to the Federal Supreme Court’s opinion the dismissal is subject to the GETA. The factual scope of the provisions of the GETA take effect in this context as the dismissal is to be classified as a so called dismissal condition according to article 2 I no. 2 GETA. Further, also the regulations stipulated in article 2 IV GETA don’t exclude the effective scope of the GETA. According to the jurisdiction of the Federal Labour Court the exemption that this article refers to is not applicable to dismissals that are not subject to the Employment Protection Act. As generally the termination of contracts with CEOs are not protected by the Employment Protection Act the regulations of the GETA are applicable. Also the personal scope of the GETA provisions shall take effect. When interpreting the GETA provisions in conformity with European law, third-party CEOs of a GmbH are to be classified as employees, as the scope of application of the GETA takes effect based on article 2 I no. 2 GETA due to the dismissal of the managing director contract. To achieve the best results from the anti-discrimination directive the GETA should be applied to management bodies of corporations, if these meet the requirements of the union law definition of an employed person. This is the case regarding third-party CEOs of a GmbH as in terms of the company they are in a relationship of subordination due to the corporative right of instruction as well as the impeachability at any time. The age related possibility of dismissal is an immediate disadvantage of the claiming CEO. Furthermore the previous explanations of the defendant regarding the supposedly operational and business interests are too general in order to justify the given age-related degradation of the claiming CEO. However, the defendant has to be given the opportunity to provide further explanations in the appeal proceedings.

Practical tip

The decision of the Federal Supreme Court (BGH) follows the jurisdiction of the European Court of Justice (EuGH) according to which third-party CEOs are employees in terms of the European Union Law and thus are protected by the European Motherhood Directive as well as the Collective Dismissal Directive. It is to be expected, that regarding all other laws that are based on European judicial fundaments and that are based on the union law definition of an employed person third-party CEOs will by also classified as employees by the Federal Supreme Court.
Therefore, it is important that, when concluding contracts with third-party CEOs these contracts don’t include any regulations that violate any employees’ protection legislation under European Law and thus may be invalid. For example, should a third-party CEO contract include termination provisions stipulating an age that is under the statutory retirement age, we recommend amending these provisions.