Managing directors may be considered employees within the meaning of the German General Equal Treatment Act ("AGG")

Facts of the case

The Plaintiff was employed as managing director with the Defendant on the basis of a time limited service agreement. He was not a shareholder of the company. The service agreement included a provision which allowed the Defendant to terminate the service relationship with  six months' notice to the end of the calendar year by means of unilateral declaration when the Plaintiff reached 61 years of age. After the Plaintiff had reached 61 years of age, the Defendant terminated the Plaintiff ordinarily and in due time. 

The Defendant brought an action for a declaration that his service agreement had not been terminated by the termination. He invoked a violation of the German General Equal Treatment Act due to discrimination based on his age.

Decision

According to the German Federal Supreme Court’s opinion, the external managing director is to be regarded as an employee as per European law, provided that the scope of application of the German General Equal Treatment Act (AGG) is established. This prohibits, for instance, discrimination with regard to employment and working conditions, remuneration and dismissal conditions.

Pursuant to the EU directive on which the German General Equal Treatment Act is based (RL 2000 / 78 / EG), the protection of the law applies to all persons in public and private areas. Thus, the term “employee” should not be interpreted too narrowly. Essential features are "that during a certain period a person performs services for another person in accordance with their instructions, for which they receive remuneration in return". According to the case-law of the German Federal Supreme Court, the shareholders of a GmbH regularly make the essential decisions. Non-shareholding managing director would implement these decisions in accordance with the instructions of the shareholders' meeting. Thus, such a managing director is to be regarded as an employee.

The German Federal Supreme Court further ruled that the German General Equal Treatment Act (AGG) should also apply to provisions agreed before the act came into force. 

Practical advice

This decision shows that the German Federal Supreme Court tends to regard non-shareholding managing directors as employees and that the court grants them typical employee rights. It remains to be seen whether the application of EU law will grant managing directors further employee rights in the future. It is therefore recommended that any agreements entered into with non-shareholding managing directors should not contain any provisions which violate employee rights under EU law.