Netherlands Update: Director at the Holding Company, Employee at the Subsidiary: What Does Dismissal Mean for Both Positions?

It often happens that someone is a director under the articles of association of, for example, a holding company, but does not have an employment contract with that holding company, but with a subsidiary. Recently, the Arnhem-Leeuwarden Court of Appeal had to rule on whether the employment contract of an employee at subsidiary Rollecate automatically ended after this employee was dismissed as statutory director at Rollecate’s financial holding company, Uroocom. What did the court decide and what can we learn from it?

The Facts

An employee has an employment contract with Rollecate. In addition, he has also become a statutory director at Uroocom. He does not have an employment contract with Uroocom. Uroocom is the financial holding company that holds all the shares of the subsidiaries within the Rollecate group. When the employee became the statutory director of Uroocom, nothing changed in his employment contract with Rollecate.

In 2022, disagreement arose within the board of Uroocom about the policy to be pursued. Despite several attempts to find a solution, it became clear that the situation was not going to improve. The employee was then summoned in June 2023 to the general meeting of shareholders (hereinafter: AGM) where his intended resignation as statutory director at Uroocom was on the agenda. After the AGM approved his dismissal as statutory director, the employee was informed in writing that this dismissal was also considered a termination of his employment contract with Rollecate.

The employee applied to the subdistrict court for the annulment of the termination of the employment contract. The court denied the employee’s request.

The Opinion of the Court of Appeal

The employee did not agree with the District Court’s judgment and appealed to the Court of Appeal. The Court of Appeal ruled as follows:

“The dismissal of [the employee] as a director under the articles of association of Uroocom does not have the effect of terminating his employment contract with another company in the group. The situation that was at issue in the so-called ’15 April judgments’, in which the director was employed by the same company of which he was also a director, does not arise here. The dismissal decision of the AGM of Uroocom is not a termination by Rollecate.”

The Court of Appeal ruled that there was no dual legal relationship. With this, the Court of Appeal refers to the double legal relationship in which someone is both a director under company law under the articles of association and an employee of the same company under employment law. If this is the case, and there is a question of dismissal as a director under the articles of association, then the prevailing doctrine is that the employment contract also ends because it is usually so intertwined with being a director under the articles of association that the employment contract would be an ’empty shell’ without the appointment as a director under the articles of association.

In its defence, Rollecate tried to show that the employee’s employment contract had in fact also become an empty shell as a result of the dismissal as statutory director at Uroocom. Thus, it argued that the legal relationship between Rollecate and the employee was merely a salary vehicle. In addition, it argued that it was for the employee to prove that he was actually performing work within his employment relationship with Rollecate, which was not related to his directorship at Uroocom. However, the Court of Appeal rejected these defences.

The Court of Appeal’s ruling implied that the dismissal of the employee as statutory director of Uroocom under company law did not mean that the employee’s employment contract with Rollecate had been terminated. At the time of termination, Rollecate should have complied with the applicable employment law rules for the dismissal of ordinary employees. The Court of Appeal concluded that the District Court had wrongly failed to annul the termination of the employment contract.

The Court of Appeal then had to assess whether reinstatement of the employment contract was reasonable, also in view of Rollecate’s request for dissolution. The Court of Appeal ruled that reinstatement was not reasonable and dissolved the employment contract due to a seriously and irreparably disrupted employment relationship.

What Can We Learn from This?

As the Court of Appeal stated in its ruling, in cases where a director under the articles of association has an employment contract with another company within the group, there is no question of a dual legal relationship. This means that a dismissal under company law does not automatically mean the end of the employment contract. It is therefore important to always check whether there is a dual legal relationship in the event of the dismissal of a director under the articles of association whose employment contract you also want to terminate. In addition, it is necessary to ascertain whether those legal relationships are actually intertwined in such a way that the employment contract is left as an empty shell after a dismissal under company law.

By Hocker, Netherlands, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact netherlands@transatlanticlaw.com

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