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The Work and Security Act (WWZ) and the legal position of managing directors of a Dutch BV or NV

The WWZ and legal position of managing directors of a Dutch BV or NV
The Work and Security Act (WWZ) and the legal position of managing directors of a Dutch BV or NV
Written by
Stephanie ter Brake

On 1 July 2015, the Work and Security Act (WWZ) entered into force. This Act changed the legal position of managing directors employed by private limited liability companies (BVs) and public limited liability companies (NVs) in The Netherlands. We will briefly set out the current Dutch dismissal system concerning managing directors of a Dutch BV or NV.

Duality

In The Netherlands the position of a managing director differs from the position of a regular employee. The reason for this is that managing directors have a dual relationship with the company. A managing director has been appointed in that capacity by the competent corporate body (the general meeting of shareholders or the supervisory board) and usually is also an employee. Hence, there is a corporate relationship as well as an employment relationship between the managing director and the company involved. However, managing directors of listed companies are forbidden by law to also have an employment relationship with the listed company. The contractual relationship between the managing director of a listed company and the listed company itself therefore is not an employment agreement but generally qualifies as an assignment agreement.

Dismissal  

The corporate body that appoints the managing director has the right to dismiss the managing director at any time. After a valid corporate dismissal, the employment contract (if any) of a managing director will in principle terminate as well. If an individual is managing director of a company while having an employment contract with another group company, the employer is required to dismiss the employee separately in accordance with the regular employment dismissal procedure.

Regular employment contracts may only be terminated after prior written consent or examination by a cantonal court or the Employee Insurance Agency (UWV). Managing directors who are appointed and employed by the same company are excluded from this general rule, because competent corporate bodies have the right to dismiss a managing director at any time. As per 1 July 2015, the dismissal of an employee, including managing directors, requires a ‘fair ground’ for dismissal. Dutch law provides for an exhaustive list of these dismissal grounds. Dismissed managing directors have the possibility to claim a fair compensation if the dismissal is unfair or due to serious misbehavior of the employer.

Transition allowance (transitievergoeding)

Like all employees, managing directors have the right to get a transition allowance if the employment agreement has continued for at least 24 months and the employment contract is terminated or not extended by the employer. No transition allowance has to be paid, however, if the termination is due to serious misbehavior of the employee. If the termination instead is due to serious misbehavior of the employer, an additional fee may be awarded by the cantonal court. Managing directors of listed companies do not have the right to get a transition allowance, since they do not have an employment relationship with the company. Nevertheless, it is possible for all contracting parties to agree up front on an additional transition allowance.

Fixed-term contracts

The maximum term and the minimum interval period of consecutive fixed-term employment contracts have changed since 1 July 2015. Fixed-term employment contracts between the same (or closely-related) parties will now automatically convert into permanent employment contracts when exceeding a period of two years. The company and the managing director may agree to deviate from this provision, but employment contracts for more than three consecutive fixed terms will automatically convert into a permanent contract. To break the chain of fixed-term contracts, managing directors, like all employees, have to be unemployed for at least six months.

 

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