Competencies of Labour Courts for Managing Director Service Contracts

The regional labour court of Cologne held in an order of 6 October 2017 (docket number 9 Ta 151/17) that the labour court is not competent to hear claims of managing directors, if there are no special circumstances that account for an employment relationship being established.

The parties concluded a managing director service contract on 21 July 2015. The first payment was stipulated for the 30 September 2015. The plaintiff claimed to have started with preparatory work for the planned business, and that there was a factual employment relationship from 21 July 2015 onwards. He argued that he had no budget responsibility, received orders from the shareholder and had to apply for leave. According to the plaintiff, on 7 September 2015 the shareholder’s meeting appointed him as the managing director. He terminated the contract extraordinarily with effect from 31 October 2015.

The plaintiff sued for employee’s salary before the labour court of Bonn, which decided that the legal action before the labour court was admissible. The respondent appealed this decision, arguing that there was no employment contract and that the ordinary courts would be competent.

The regional labour court of Cologne ordered that the labour court Bonn is not competent. There was no employment contract; any activity by the plaintiff was based on the managing director service contract, especially considering that he based his claims for remuneration on that contract.

If there are no special circumstances, contracts with managing directors are service contracts and not employment contracts. The orders from the shareholder the plaintiff referred to are merely a consequence of the right of instruction resulting from corporate law. There can be cases in which there is no difference to a right of instruction of an employer, but this cannot be assumed in the present case only because of the necessity to apply for leave. The managing director is obliged to take vacation in consultation with the company’s interests.

The regional labour court of Cologne regarded as crucial that the plaintiff was assigned responsible activities, which accounted for his special status. The mere fact that the plaintiff started his activities before he was appointed as a managing director by the shareholder’s meeting does not allow for any conclusions to be drawn with respect to the nature of the service contract.