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Arbeitsgericht or Landgericht: Where should the director of a GmbH bring a complaint?

Arbeitsgericht or Landgericht: Where should the director of a GmbH bring a complaint?

Unlike the Netherlands, as well as the ordinary courts, Germany also has special employment tribunals (Arbeitsgericht) to resolve labour disputes between employees and employers.  The advantage of these tribunals is that the claimant does not have to pay any advance towards court costs and the losing party does not have to pay the winning party’s legal costs either – each party pays their own legal costs in the first instance. Additionally, protection against unfair dismissal under the German Protection against Dismissal Act (Kündigungsschutzgesetz) only applies before these employment tribunals and as they specialise in such proceedings, an employee bringing a claim has a greater chance of being granted a severance payment or a similar benefit.  For the same reasons, directors also try to bring complaints against dismissal before these employment tribunals. The question arises of what a director who has been dismissed should do: can he bring a claim for unfair dismissal against his employer before an employment tribunal or should he bring an action before an ordinary court? The relevant Act – Arbeitsgerichtsgesetz (ArbGG) – stipulates that directors and officers of a legal entity are not employees. Instead, the director takes on the role of employer; he is their representative and is in their camp. The ArbGG is designed to prevent disputes that actually only concern the employer from coming before employment tribunals. However, in recent years, case law shows that there has been an increasing trend for directors to be allowed to bring claims before employment tribunals.

Situation up to 2011
Up to a ruling by the Federal Labour Court (Bundesarbeitsgericht – BAG) in 2011, the decisive factor for complaints by a director for wrongful dismissal was the time of receipt of notice of dismissal (temporal component). If the director was still in office when the notice of dismissal was received, the ordinary court was competent to rule on the claim for unfair dismissal. This meant that directors normally had to bring their claims before the ordinary courts. The only substantive exception applied to claims based on a different legal relationship than that on which the office (directorship) was based (substantive component). For instance, this could arise from an inactive employment status such as applied to the director until he was appointed director. If this status was not terminated in writing, it would persist until the termination of the directorship, which could also be agreed verbally, and would apply once more following the termination of the directorship.  In practice, this often led to uncertainty so that not only the claim itself, but also the competence of the court in question, was a matter of debate in the course of the proceedings.

Situation after 2011
A shift with regard to the temporal component occurred with a ruling by the highest employment tribunal in Germany (Bundesarbeitsgericht, BAG) in 2011. All that matters to the BAG now is whether the director is still in office – if so, he has to bring his claim before the ordinary courts, but if he has already been dismissed, he may also approach the employment tribunals. It is a question of defining the moment of dismissal: when the director is dismissed by the shareholders or when the dismissal is entered in the commercial register, which can take some time. In 2014, the BAG also clarified this point for directors bringing a claim. The BAG took the view that the dismissal of a director should be considered until the legal ruling on the competent court. Dismissal by the shareholders suffices for this, since the entry of the dismissal in the commercial register is irrelevant to the question of whether the claim can be brought before an employment tribunal.

In 2011, the BAG also ruled with regard to the substantive component that the decisive factor for the question of competence was the basis on which the director exercised his role. If the original contract of employment, existing before his appointment as director, is not terminated in writing and the terms of the contract are not amended (with regard to remuneration, for instance), the director exercises his role on that basis. A director who is subsequently dismissed can therefore bring a claim for payment under this contract of employment before an employment tribunal.

A dismissed director should therefore check carefully whether recourse to an employment tribunal – generally the most advantageous path – is open to him.

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