Even contracts between employers and employees are frequently the subject of legal proceedings. Contracts between managing directors and companies—particularly corporations such as the GmbH and the UG—are often even more complicated.
Virtually every contract lists the rights and obligations of both parties. For example, the managing director must prepare the annual financial statements and a management report for the past fiscal year and send them to all shareholders. This also includes the managing director convening a shareholders’ meeting. At that meeting, the annual financial statements are approved, and a decision is made on how to allocate the net income.
The contracts also address liability. Standard provisions include the stipulation that the managing director is liable to the company only for intentional acts and gross negligence. It is also typically noted that the managing director is liable for all damages only up to a specific maximum amount. In this regard, the company takes out financial loss liability insurance with a specific coverage amount for the managing director.
Another issue is vacation time. The Federal Vacation Act requires a minimum of four weeks of vacation. Managing directors typically receive about one to two weeks more than required by law.
In addition to a fixed salary, the compensation package usually includes bonuses and incentives.
Similar to employees, the managing director is also entitled to continued pay in the event of illness. The minimum standard is typically provisions stipulating continued pay for up to six weeks. However, it is not uncommon for managing directors to be entitled to continued pay for up to six months.
Contracts between managing directors and the company should also include provisions regarding health insurance. The minimum standard here is that the company contributes the same amount as it does for employees.
Endowment insurance policies are also a common component. The company takes out these policies in its own name on the managing director’s life.
Key point: Notice periods. As is well known, statutory protection against dismissal does not apply to managing directors. Consequently, relatively long notice periods must be agreed upon to protect the managing director in the event of removal from office and termination of the employment contract. The absolute minimum here is three months to the end of the quarter. In most cases, notice periods of six or nine months to the end of the quarter, the end of the half-year, or the end of the year are standard.
The contracts also address the issue of “transactions for personal gain and secondary employment.” These either require prior approval from the shareholders’ meeting, are permitted—provided they do not conflict with the company’s business—or are generally prohibited.
The contracts usually also include provisions regarding non-compete clauses. The managing director may not disclose internal company information to third parties and is also obligated, for a specified period after the termination of the contract, not to work for a company that is in direct or indirect competition with his or her former company.
The topic of “termination of executive office” is mandatory. Here, a distinction is made between dismissal, resignation, ordinary termination, and extraordinary termination.
This is often followed by provisions regarding severance pay, which apply in the event of ordinary termination or non-renewal of the employment contract.
