Employment relationship with a managing director is transferred to the buyer in the event of a transfer of business

If the legal relationship between a managing director and the limited liability ("GmbH") is based on an employment relationship, this is transferred to the buyer in the event of a business transfer pursuant to Section 613a of the German Civil Code ("BGB"), in contrast to the position of an executive body. This was decided by the Federal Labor Court (judgment of July 20, 2023 - 6 AZR 228/22).

Facts of the case

The plaintiff has been employed by a GmbH since September 1, 2000, and was appointed as its managing director in December 2013. A managing director's employment contract was not concluded either at the time of appointment or in the period thereafter.

The parties are in dispute about the validity of a termination for operational reasons dated January 15, 2020, which was received by the managing director on the morning of January 16, 2020. The insolvency administrator (defendant 1) gave notice of termination to the plaintiff after the insolvency proceedings were opened on January 15, 2020. By email dated January 16, 2020, 2:56 p.m., i.e. after receipt of the notice of termination, the managing director resigned from his position as managing director with immediate effect.

In the dispute, the managing director takes the position that the termination of his employment relationship was not justified, that a transfer of business to an acquirer (defendant 2) took place on January 28, 2020, and that his ineffectively terminated employment relationship has therefore continued to exist with the acquirer since the transfer of business. The defendants dispute the existence of a transfer of business.

The Labor Court upheld the action in its entirety, while the Hamm Regional Labor Court (judgment of March 25, 2022 - 16 Sa 522/21) dismissed it, leaving open the question of whether there was a transfer of business, as the Regional Labor Court did not consider this to be relevant.

Reasons for the decision

The BAG set aside the judgment of the Regional Labor Court and referred the legal dispute back for a new hearing. It firstly stated that if an employer and a managing director conclude an employment contract instead of a service contract, the legal classification of their contractual relationship depends solely on the contractual agreement and not on the actual execution of the contract, even if a managing director of a GmbH regularly works on the basis of a service contract. The appointment to the executive body of a legal entity is exclusively a so-called corporate legal act and does not establish a contractual relationship between the member of the executive body and the company.

The presumption of Section 14 (1) No. 1 of the German Dismissal Protection Act ("KSchG"), according to which the termination of an employment relationship does not require social justification within the meaning of Section 1 (2) KSchG in the case of an executive body of the company, applies if the position as managing director of the executive body still existed at the time the notice of termination was received. Therefore, the dismissal was not socially unjustified.

The BAG also ruled that the provision in Section 613a BGB on the transfer of business protects board members within the meaning of Section 14 (1) No. 1 KSchG who are active on the basis of an employment relationship. In principle, such employment relationships are also transferred to the acquirer with the content of the employment last held by the seller of the business and with the activities of a managing director. The position as a body of representatives of legal entities, on the other hand, is not transferred due to a transfer of business; Section 613a BGB also does not give rise to a claim against an acquirer to be appointed as managing director.

Following the rejection, the Regional Labor Court must examine whether a transfer of business has taken place, which was disputed between the parties, and whether the dismissal is invalid due to a violation of the prohibition of dismissal in Section 613a (4) BGB.

Notes for the practice

The BAG's decision is important and must be taken into account when terminating a contractual relationship with a managing director.

When appointing a person as a managing director who is already in an employment relationship with the entity, a GmbH should sensibly ensure that the employment relationship is effectively terminated at the same time and that the rights and obligations arise conclusively from an employment contract to be concluded from the time of appointment.

The BAG has not only clarified that the employment relationship of a managing director can also be covered by a transfer of business, but also that in this case the prohibition of termination under Section 613a (4) BGB must also be complied with. Section 613a (4) BGB is a prohibition of dismissal that is independent of the scope of application of the Dismissal Protection Act and is intended to protect against dismissals motivated by a transfer of business.

In a side note, the BAG states that after the transfer of the employment relationship, the employee has a claim against the acquirer for employment with the activities that he had previously carried out as managing director on the basis of the employment contract if it is not stipulated in the employment contract, for example, that either the original activity or another activity specified in detail will become part of the contract upon the end of the position on the board and after the notice period has expired.

Finally, the BAG also addressed the fact that the so-called national employee concept applies to Section 613a BGB. According to this, any person who is protected as such under national employment law is to be regarded as an employee. This means that managing directors who are only in an employment relationship are not covered by a transfer of business. As an employment relationship existed in the case decided, the Regional Labor Court has yet to decide on, among other things, the existence of a transfer of business.