Requirements for opening legal recourse to the labor courts for managing directors of limited liability companies

The Regional Labor Court of Mecklenburg-Western Pomerania (“LAG”) clarified in its decision of May 15, 2024 - 3 Ta 21/24 that a dismissal from the position of managing director does not automatically turn the underlying contractual relationship into an employment relationship.

Facts of the case

The plaintiff was entered in the commercial register as a managing director on October 29, 2018 and was dismissed as a managing director with effect from November 13, 2023. In a letter dated December 1, 2023, the defendant terminated the contractual relationship with the plaintiff without notice and alternatively with notice.

Against this background, the parties are now disputing the legal validity of the termination of the “managing director´s service agreement” without notice and, alternatively, with notice (claim under no. 1) as well as claims for remuneration for the period from December 2023 to February 2024 (claims under nos. 2 to 4) and a claim for vacation compensation for the year 2023 (claim under no. 5).

The labor court has declared legal recourse to the labor courts to be open. The immediate appeal lodged against this by the defendant before the LAG was partially successful and led to the referral of the claims under nos. 2 to 5 to the Regional Court.

Reasons for the decision

The LAG first determined that the jurisdiction of the labor courts was not excluded pursuant to Section 5 (1) sentence 3 of the German Labor Court Act (ArbGG), as it was undisputed that the plaintiff had been dismissed as managing director with effect from November 13, 2023 - as documented in the commercial register. Therefore, at the time the action was filed, there was no - longer - a position as an executive body within the meaning of Section 5 (1) sentence 3 ArbGG.

Furthermore, the LAG only considered the declaratory application under no. 1 to be subject to legal recourse to the labor courts pursuant to Section 2 (1) no. 3 b in conjunction with Section 5 (1) sentence 1 ArbGG. Although the legality of the termination without notice of a service relationship is also governed by Section 626 of the German Civil Code (BGB), so that the relevant part of the application under no. 1 cannot only be justified if the legal relationship is to be classified exclusively as an employment relationship, the necessary interpretation of the application under no. 1 shows that the plaintiff is in any case seeking a declaration that the employment relationship continues to exist. In this respect, there is a so-called sic-non case, in which the plaintiff's assertion that the managing director's service agreement is an employment relationship is sufficient to justify legal recourse to the labor courts.

With regard to the applications for payment under nos. 2 to 5, however, legal recourse to the labor courts was not open. As this would not be a sic-non application, it would rather have been a matter for the plaintiff to present and prove the factual circumstances that speak for the existence of an employment relationship. The mere dismissal as managing director and the resulting loss of the position as an executive body within the meaning of Section 5 (1) sentence 3 ArbGG was not sufficient for this since the legal nature of the service relationship of a body representative does not change simply because he is dismissed. The managing director's service relationship does not automatically become an employment relationship as a result of the act of dismissal and the body representative therefore does not automatically become an employee.

Practical advice

The Federal Labor Court only opens up legal recourse to the labor courts for managing directors of limited liability companies in exceptional cases. If the managing director is not already barred from legal recourse in accordance with Section 5 (1) sentence 3 ArbGG, as he still exercises employer functions in the absence of dismissal from his position as managing director, the second step is to examine what requirements are to be placed on the plaintiff's submission. The Federal Labor Court distinguishes between three types of cases. In a so-called sic-non case, the mere assertion by the plaintiff that he/she is an employee is sufficient to justify legal recourse to the labor courts if the action can only be justified when the legal relationship can be classified as an employment relationship. In the other two groups of cases, a positive determination of the existence of an employment relationship is a necessary prerequisite for affirming jurisdiction to take legal action before the labor courts (BAG, decision of January 21, 2019 - 9 AZB 23/18).

Although legal recourse to the labor courts is associated with decisive cost advantages compared to the civil courts, it should be carefully checked before filing a lawsuit whether legal recourse to the labor courts is even open, as otherwise there is a risk of referral.