Legal position of German managing directors
Virtually everyone knows: Managing directors are usually entrusted with the senior management of a company. But when it comes to deciding whether or not a managing director is also an employee, opinions differ. Even before the German courts, managing directors have no unequivocal position.
But one thing is clear: They are no employees under German employment law – though, they are under German social security law.
No minimum paid vacation and no maternity leave for managing directors
As managing directors are no employees within the meaning of the German labor courts’ case-law, they are not covered by employee protection regulations. Hence, the mandatory protective provisions applicable to employees do not apply to managing directors.
As a consequence, managing directors are not entitled to the statutory minimum paid vacation, for example. In case of illness, the company does not owe continued remuneration, either. And the German Maternity Protection Act is not applicable. In addition, contrary to employees, managing directors generally have no protection against unfair dismissal. Consequently, managing directors are worse off under German employment law than employees.
Compulsory membership in the statutory health insurance scheme
From the point of view of social security law, however, managing directors are considered as employees if their shareholding in the company is less than 50 percent. As a consequence, although managing directors are deprived of the protections granted to employees under employment law, they are in many cases obliged to join the statutory health insurance scheme.
Options for managing directors in Germany
The protection afforded to employees under mandatory law, including minimum paid vacation or protection against unfair dismissal, may be granted to managing directors by incorporating it into the managing director’s employment agreement. Managing directors should therefore make absolutely sure their employment agreements include corresponding provisions on notice periods or paid vacation, so as to avoid being devoid of any protection in case of a dispute.
This is how we can help you
Our experts specializing in labor law and corporate law will be pleased to help you with all questions relating to the employment of a managing director and drafting the corresponding agreements.