Legal basis for employing a management board member

Currently, a company may engage an MB member under an employment contract and also under a named or un-named civil-law contract (particularly management contract). An MB member may also manage the company without holding any contract (relying solely on a resolution defining to a greater of lesser extent the member’s rights and obligations).

An MB member with an employment contract is in effect an employee, in accordance with Article 2 of the Labour Code. The Labour Code then affects the member’s legal situation in practically the same way as for regular employees. However, there are a few very important exceptions.

Special rules for engaging a management board member under an employment contract

The legal nature of employing an MB member has peculiarities primarily in terms of the conclusion, amendment and termination of the employment contract. Under Article 210 par. 1 of the Commercial Companies Code (CCC) and Article 379 par. 1 CCC,  the supervisory board or an attorney-in-fact appointed by a resolution of a meeting of shareholders, represents the company (limited liability or joint-stock company, respectively) in contracts and any disputes with management board members.

Provisions of law establish a special form of representation for companies in all contracts with MB members, and therefore also employment contracts. Thus only an attorney-in-fact appointed by a meeting of shareholders or the supervisory board may take effective decisions on behalf of the company in employment law matters with MB members regarding concluding, amending and terminating employment contracts (Article 3¹ par. 1 of the Labour Code). In addition, unilateral legal acts undertaken by the company with respect to MB members’ contracts such as termination, dissolution and withdrawal, are also within the remit of the authority of the attorney-in-fact/supervisory board (Supreme Court judgment of 6 October 2020, I PK 49/19).

Termination (dissolution) of a management board member’s employment contract

It therefore follows that an attorney-in-fact or the supervisory board (acting as a whole or through an authorised representative) is the entity entitled to serve a notice of termination (including with immediate effect) of an MB member’s employment contract while the member is still serving on the MB.

However, the situation is different if the termination (dissolution) of the employment contract is preceded by a recall of the MB member from the board (possible at any time and effective upon the relevant authority adopting such a resolution). A recall from office ends the corporate relationship between the company and the MB member. Consequently, the prerequisites of Article 210 par. 1 of CCC cease to apply (Article  379 par. 1 of CCC). In such case, the general provisions of Labour Law, above all Article 3¹ par. 1 of CCC, then apply to the rules for representing the company in acts with a member who has been recalled from the MB. This means that for a recalled MB board member, a statement terminating that person’s employment contract should be submitted by the management board, registered proxy or attorney-in-fact, namely someone authorised by the management board to decide on employment law matters, alternatively a different person appointed for such matters. On the other hand, if such acts are undertaken by the attorney-in-fact of a meeting of shareholders or the supervisory board, they will have no legal effect.

As an exception, case law accepts that the supervisory board may terminate the employment contract of a recalled management board member, if this body adopts resolutions at a single meeting that both end the corporate relationship of MB membership, and directly (simultaneously) express an intent to terminate the employment of the recalled MB board member due to ending the corporate relationship in the form of MB membership. (Supreme Court judgments of 13 April 1999, I PKN 3/99, of 24 January 2002, I PKN 838/00). Similarly,  if an attorney-in-fact has been appointed at the company for acts with MB members, the simultaneous adoption of resolutions to recall a member from the MB and to appoint an attorney-in-fact to terminate the member’s employment contract will be deemed correct, if these resolutions were adopted during a meeting of shareholders attended by the member or were communicated to the member immediately after their adoption. The simultaneity of the acts is meant restrictively: if a notice of termination is submitted by an attorney-in-fact of a meeting of shareholders on the day after the recall of the MB member from the board, this will be in breach of the law (judgment of the Supreme Court, dated 6 October 2020, I PK 49/19).

Consequences of mistakes in terminating (dissolving) employment contracts

A recalled MB member, who has also received a notice of termination or dissolution of employment, may file an appeal to a labour court. The court may then verify the legality of the act, particularly whether the relevant body of the company carried it out.

If it is found that the act breached the rules of representation (particularly if concluded  by an attorney-in-fact of a meeting of shareholders/supervisory board instead of the management board), the former management board member will be entitled to compensation from the former employer equal to the remuneration for the period of notice (in principle, a maximum of three months, unless the parties extended the period of notice).

At the same time, the recalled MB member will also have a formal right to demand reinstatement to work. The Supreme Court confirmed that no provision may deprive a MB member of this right (ruling of 16 May 2012, III PZP 3/12; and judgment of 6 June 2023, II PSKP 105/21). However, the employee will only be reinstated in exceptional cases: given that it will be impossible for the person to discharge duties (due to the recall from the MB), the labour court will usually find a reinstatement to be inexpedient or contrary to the social and economic purpose of the law (such arguments will apply to demands for reinstatement from employees who enjoy special protection against dismissal, for whom the court cannot award compensation instead of reinstatement).

Hence, although the primary risk of a defective dismissal from employment of a MB member is the employer’s financial liability, reinstatement cannot be ruled out (it appears that this is likely, in particular, if a recalled MB member invokes in a labour court a concurrent challenge under the provisions of CCC from another management board member, supervisory board member/shareholder against the resolution recalling the member ).

Summary

Bearing in mind the special rules that govern the representation of companies when ceasing cooperation with an MB member, employers should be very cautious when considering such steps and, in every case, have a ready timetable of steps to be taken – most often, although the recall from office and termination/dissolution of employment may not be far apart in time, but the sequence of the events is crucial. But it may prove very costly, if the wrong body submits the notice of termination.

Michał Mieszkowski