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Engaging and terminating managing directors in Europe

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Engaging and terminating managing directors in Europe

“Engaging and terminating managing directors in Europe” is the publication title that brings together a labor law overview by 33 lawyers from different countries on the hiring and termination of managing directors. Alexandra Almeida Mota, a lawyer at BAS, represented Portugal.

Preface

Employment law varies considerably from jurisdiction to jurisdiction throughout Europe. This is also the case when engaging and terminating the engagement of managing directors. In some countries, it is common to engage self-employed managing directors on a so-called service agreement, and in other countries it is standard practice to engage managing directors as employees. The manner in which the managing director is engaged may be crucial, not only during the period of employment, but also when the company would like to terminate the engagement of the managing director. For a parent company with subsidiaries in other jurisdictions, it is easy to make incorrect assumptions when engaging or terminating the managing director of a subsidiary in a different jurisdiction. It is advisable, therefore, to consider carefully what applies in the jurisdiction in question before taking steps to engage or terminate a managing director.

The term managing director (“MD”) refers in this document to the person at the company responsible for conducting the day-to-day management in accordance with the guidelines and instructions of the board of directors. A managing director is often also referred to as Chief Executive Officer (CEO). The concept of a managing director is not the same in all European countries, and the rights and obligations of the managing director can vary from country to country. In some countries, the managing director is regarded as an employee and in other countries not. In several countries, the type of agreement entered into with the managing director determines whether or not the managing director is an employee. If the managing director is regarded as an employee, this will mean in some countries that the managing director enjoys all the rights, benefits and entitlements reserved for all employees under employment law. In other countries the managing director enjoys only certain of those rights, benefits and entitlements that are reserved for employees in general.

The decision to engage or terminate a managing director generally needs to be made by the board of directors of the company, which may involve procedural rules beyond the scope of employment law. Further, the termination of a managing director usually raises issues of post-termination non-compete, non-solicitation and confidentiality clauses, which should also be considered. Since following the correct procedural rules is essential for a successful engagement or termination of a managing director, it is critical that such matters are carefully planned and prepared for in advance. In the summary below you will find information which is useful when planning to engage or terminate a managing director in different European countries. The summary has been jointly produced by 33 employment lawyers working in various European countries. Please note that the information is limited to a high-level overview of the employment-law landscape and does not deal with company law or corporate governance considerations.

Rebecka Thörn
Initiator and editor

Portugal

Service agreement, consultancy agreement or employment contract?

MDs of joint-stock companies (S.A.) are generally engaged under service agreements. Most limited liability companies (Lda.) MDs are engaged under employment contracts. However, these employment contracts are commonly made subject to a service commission regime, which allows for termination upon providing notice.

Is there a need to have a valid reason for terminating a managing director?

Suppose the MD has been hired under an employment contract subject to a service commission regime. In that case, the law stipulates a 30-day or 60 days of notice for termination (respectively for contracts of up to two years, or for longer), without the need to justify the termination.

Is severance payment mandatory?

Yes, if an MD is hired under an employment contract subject to a service commission regime. No, if the MD is hired under a service agreement unless such compensation has been included in the contract.

Alexandra Almeida Mota

Read the article here (PDF) or consult the publication here.

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