The special legal status of a director in The Netherlands
A director under the articles of association (hereafter: director) has a special legal status in The Netherlands. Unlike an ordinary employee he has a corporate as well as an employment engagement with the company. Both engagements are discussed by Dutch lawyer Sander Schouten.
Supervisory board has the authority to appoint director
Appointment of the first director of a company takes place at the deed of incorporation. The authority to appoint a new director of an ordinary limited lies with the general shareholders’ meeting. In larger companies that are subject to a two-tier board structure the supervisory board has the authority.
A decision to appoint is not prescribed by regulation
To install a new director a valid appointment resolution is required. Preferably this decision will be put in writing and attached to the employment contract. This is not always how it happens, however, as a decision to appoint is not prescribed by regulation and therefore does not need to be written down in a contract (unless required by the articles of association). If that is the case, it has to be made plausible that an appointment regulation has indeed been passed, by for example supplying minutes. If the limited company has installed a Work Council, its advice is required. Please take note: the mere registration of a director’s name in the register of the Chamber of Commerce does not prove the formal appointment of a director.
Acceptance by a director: implicitly or explicitly?
Besides the decision to appoint also acceptance by the director needs to be established. Obviously nobody can be appointed without accepting the appointment. The acceptance of the appointment can take place implicitly or explicitly and is –just like the appointment resolution- not prescribed by regulation.
Contract for services
The agreement between the company and the director often constitutes an employment element as well. Another option is to employ a director via a so-called management agreement, which could be entered into with the director personally, or via his personal management company. Since the Management and Supervision Act entered into force it is no longer possible to conclude an employment agreement with a director of a listed company. The relationship between a director and a listed company has since then been qualified as a contract for services.
Corporate dismissal decision in The Netherlands
The director can be dismissed at any time by the body that was authorised to appoint him, i.e. the shareholders’ meeting or the supervisory board (at larger companies). Starting point is that a corporate dismissal decision in principle results in a termination of the employment relationship as well.
Director not protected by the safeguards against dismissal
Contrary to ordinary employees a director is not protected by the statutory safeguards against dismissal. The special prohibition against termination during an employee’s illness or pregnancy and so on continue to apply, however. In those cases a director can be dismissed from his position as director while he remains entitled to his remuneration until the prohibition of termination is lifted (by ending of illness for example).
Additional redundancy pay
Due to the lack of protection against dismissal, it is not uncommon to agree with directors an additional redundancy pay or a longer period of notice of termination. Directors working in the public or semi-public sector are subject to the Executives’ Pay Act. This act imposes restrictions on the amount of salaries on the total redundancy pays.
Legal changes in The Netherlands per 1 July 2015
When the Work and Security Act enters into force on July 2015 a dismissed director will be entitled to a transitional compensation. Furthermore a director can claim an additional fair compensation if there is seriously culpable conduct of the employer.