It is repeatedly confirmed by the jurisdiction: Managing directors of a German limited liability company (GmbH) can be held personally responsible for the violations of an employee. In a recent case, the Nuremberg Higher Regional Court (OLG) confirmed a ruling by the Nuremberg-Fürth Regional Court (LG) and also considered it proven that the managing director had not sufficiently fulfilled his due diligence obligations and was therefore personally liable to the company. The ruling shows how important it is – even in medium-sized companies – to establish suitable and effective compliance structures.
Employee knowingly allows customers to exceed credit limit
A GmbH & Co. KG demanded compensation for damages from its managing director because, in its view, he had failed to prevent an employee who had misappropriated funds from committing legal violations at an early stage.
The company issues, among other things, fuel cards to its customers, whose drivers can then use them – similar to a credit card – for cashless payments at the company’s service stations. The employee responsible for fuel cards concealed the overdrawing of credit limits on the part of some customers by incorrectly assigning fuel cards. This meant that customers who were unable to pay their fuel bills to the company due to economic difficulties were able to continue using the cards. As a result of this behavior, the employee was responsible for a financial loss in the high six-figure range within the company.
Court: Managing director has not taken any safety measures
According to the court’s findings, the managing director had simply failed to install internal safeguards that could prevent or at least quickly detect any misconduct by the company’s employees. The managing director had also failed to assess the easily ascertainable actions of the employee accordingly and to verify transactions on a random basis or to have them verified. He had thus massively violated the due diligence obligations incumbent on him as a reasonable and responsible managing director and was therefore liable to the plaintiff for compensation.
Legality requirement: Management must establish a compliance management system
According to the court, however, managing directors must therefore create an internal organizational structure that guarantees the legality of their actions – including those of their subordinates – at all times. Accordingly, an appropriate level of supervision must be established to prevent employees from disregarding any guidelines of the company (including in terms of criminal law) for extended periods of time.
In this context, the managing director is not only obliged to monitor the course of business in such a way that the proper conduct of business can be expected, he must also be able to intervene at any time as soon as indications of misconduct become apparent.
To ensure this supervisory duty, sufficient checks must be carried out, the intensity of which, depending on the hazardous nature of the work and the weight of the regulations to be observed, must not be limited to occasional inspections. In some cases, random, surprise audits may also be required, provided they demonstrate to employees that violations can be detected and punished. At the same time, however, respect for the dignity of employees and the preservation of the working atmosphere must not be disregarded.
Effective compliance management systems essential for managing directors
The ruling shows once again how quickly managing directors can be held personally liable in Germany if they fail to fulfill their supervisory duties and do not implement (effective) compliance measures within their organization.
Corresponding liability claims may still be assigned to former managing directors up to five years after leaving a company. It is therefore advisable to install appropriate and effective compliance precautions at an early stage to minimize the risk of unpleasant surprises later on. Our experts will gladly advise you on this!
Four phases of setting up a CMS in Germany
Business Judgement Rule: 5 Basic Rules For Dutiful Action in Germany