In their professional capacities, managing directors of a GmbH (limited liability company) are subject to numerous liability risks due to their position of authority. As such, they can be held directly liable by the company’s creditors – with their personal assets, immediately and directly.
These risks emerge, in particular, from a labor law perspective, as a managing director is responsible for ensuring compliance with employer obligations and mandatory regulations under German labor law. One such mandatory regulation is the obligation to pay the statutory minimum wage, which is set at 12 euros per hour in 2023.
If a GmbH fails to pay its employees the minimum wage, this constitutes a violation of the Minimum Wage Act (Mindestlohngesetz, MiLoG), which is an administrative offense that can result in a fine. But does this mean the managing director is personally liable for this violation?
Federal Labor Court (BAG) rules no personal liability for managing directors
The German Federal Labor Court (Bundesarbeitsgericht, BAG) ruled in its decision from March 30, 2023 (Case number 8 AZR 120/22) that the personal liability of managing directors does not extend to the subsequent payment of the statutory minimum wage.
The plaintiff was employed by a GmbH. The defendants worked for the company as managing directors. When the GmbH paid wages late over several months, the plaintiff did not show up for work in June 2017 and asserted a right to withhold his work performance. He received no remuneration for this month. The plaintiff believed he was entitled to at least the statutory minimum wage for June 2017 under a tort claim for damages. He argued that the managing directors were personally responsible for the unlawful breach of the obligation to pay minimum wage. However, the Federal Court disagreed with this argument and dismissed the action.
Lifting the corporate veil – only if in violation of a protective law
The court’s decision was based on the general liability regime within a GmbH. According to this, a managing director’s tortious liability for claims for damages by the company’s creditors should only be relevant if there are special grounds for liability. Liability for a GmbH’s obligations is primarily limited to the company and its assets.
Special grounds for liability exist if a managing director violates a protective law. A protective law is a legal requirement or prohibition which clearly and unambiguously determines when it is violated as well as which interests and which group of persons it protects.
The provision under MiLoG that imposes a fine on the employer for failure to pay the statutory minimum wage does not constitute this manner of protective law in favor of the company’s employees – at least not with regard to managing directors, according to the BAG.
The BAG argued that the purpose of the minimum wage obligation is to secure the livelihood of workers and relieve the social security system. This is safeguarded by the penalty provision if an employee does not want to or cannot enforce their own wage claim. The legal system does not provide personal liability of the corporate bodies; nor is this necessary.
Therefore, the BAG has set limits to the personal liability of a managing director, at least within the framework of MiLoG.
Note: fine for committing an administrative offense
It is, however, important to note that a managing director, as an authoritative body of the GmbH, commits an administrative offense with a violation of MiLoG. Unlike a claim for damages under civil law, there is an increased risk, at least from a criminal law perspective, that a penalty notice will also extend to the managing director(s) personally.
WINHELLER advises Managing Directors
Given the extensive liability that managing directors potentially face, not only under criminal law, we strongly suggest that all directors ensure the use of effective employment contracts and adhere to employee-protection standards when hiring in Germany. At WINHELLER, we provide comprehensive advice to managing directors on all aspects of labor law and assist in the formulation of employment contracts. Please don’t hesitate to contact us for a no-obligation quote.