Bill on modification of directors’ position under employment law introduced

Government Minister of Justice Mr Hirsch Ballin presented a draft bill for consultation via the Internet. The draft offers companies (BVs and NVs) the option to choose between the present (two-tier) system of an executive board and a non-executive board, and a new system combining both (the one-tier system). A proposal to modify the legal position of company directors forms part of this draft bill.

As a rule, a contract made between a company and its directors as defined in the articles of association is governed by statutory rules in terms of employment law as well as corporate law. Two Supreme Court opinions handed down on 15 April 2005 established that if either the employment contract or the position of a director under the articles of association ends, the other position ends as well. In other words: the employment contract of a director as defined in the articles of association ends – save in special cases – by the mere fact that his position of director as defined in the articles of association in terms of corporate law ends. Hence, in principle a shareholders’ resolution to end the position of a director as defined in the articles of association will be enough to end his employment contract as well. In this context, the way in which the notice period (and its implications under employment law) is applied deserves extra attention.

The objects of the Minister’s proposal (following a recommendation by the Tabaksblat Commission) are to abolish employment protection that directors may rely on as well (such as the prohibition on dismissal during sickness or pregnancy) and to facilitate the unrestricted making of contracts for a fixed term. It turns out that another significant object is to impose a ceiling on severance payable to (failing) directors.

Thus, the bill appears to be a follow-up on earlier attempts to tackle severance payments to directors leaving a company. Recent examples would include the Harrewijn Act (requiring business owners to inform their works councils in detail on the remuneration for directors) and the draft for a bill on the works council’s right to take the floor at the shareholders’ meeting of all NVs as regards the determination of directors’ remuneration (the SER, the Social and Economic Council of the Netherlands, rendered a positive recommendation on this draft with respect to listed NVs).

The plans to change the qualification of the legal relationship between a company and its directors are not new. The consequences of this change – if actually implemented – will be much broader and more drastic than the objectives the Minister is entertaining. However, in and of itself, changing the legal relationship between a company and its directors will not result in a change in the substance of their relationship when compared to the present situation. As the bill does not limit contractual freedom, parties may still negotiate the same terms in contracts between a company and its directors as is done now.

For more information, please contact Paul Witteveen or Martijn Burgers, Employment Practice.

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