Germany: Application Of The General Equal Treatment Act To The GMBH Managing Director

The parties are in dispute about the effectiveness of the termination of a temporary managing director contract that had been repeatedly extended. Article 7(3) of the service contract contains a provision according to which, from the managing director's age of 61, both parties may unilaterally terminate the work relationship at six months' notice effective at year-end.

By letter dated June 23, 2016, the plaintiff, who was born in 1955 and was 61 years old at the time, was dismissed effective December 31, 2016.

The plaintiff claims that his service contract did not end by the notice of termination. His lawsuit was unsuccessful in the lower courts.

The appeal to the Federal Court of Justice was successful. The Federal Court of Justice overturned the appellate court's judgement and referred the case back to the Higher Regional Court.

In the case at issue, the application of the General Equal Treatment Act is not already excluded by Section 2(4) General Equal Treatment Act. The provision stipulates that only the provisions of general and special protection against dismissal apply to dismissals. The Dismissal Protection Act does not apply to management service contracts, however.

The material scope of application is possible under Section 2(1) no. 2 General Equal Treatment Act. The provision in Article 7(3) of the service contract is a dismissal condition within the meaning of the statutory provision.

The personal scope of application (Section 6 General Equal Treatment Act) does not already result from Section 6(3) General Equal Treatment Act. The provision deals with the conditions of access to employment and promotion of self-employed individuals and members of corporate bodies, in particular managing directors and executive board members. Conditions of dismissal are not covered by Section 6(3) General Equal Treatment Act, however.

Instead, in the opinion of the Federal Court of Justice, the personal scope of application under Section 6(1) sentence 1 no. 1 General Equal Treatment Act is permitted. Since the General Equal Treatment Act has transposed the underlying European Directive with the same content and does not refer to the concept of employee under German law, the concept of employee needs to be interpreted under European Union law, taking into account the relevant case law of the Court of Justice of the European Union. The Directive's objective of protecting a broad circle of persons allows it to consider the external managing director of a GmbH as an employee protected against discrimination by dismissal conditions.

The case law of the Federal Court of Justice, according to which members of corporate bodies are not employees within the meaning of employment law provisions, but are exercising an employer function themselves, does not preclude the classification of the external managing director of a GmbH as an employee within the meaning of Section 6(1) sentence 1 no. 1 General Equal Treatment Act. This decision is based on the national concept of an employee, which is of no relevance for the purposes of Union law here.

A member of a management body who, for consideration, provides services to the company by which the individual has been appointed, who carries out his activities under the direction or supervision of another corporate body of that company and who may be dismissed from his post without restriction at any time, meets the conditions to be considered an employee within the meaning of Union law.

Accordingly, the external managing director of a GmbH is to be regarded as an employee within the meaning of Section 6(1) sentence 1 no. 1 General Equal Treatment Act in the event of termination of his managing director contract if the material scope of application of the General Equal Treatment Act is permissible via Section 2(1) no. 2 General Equal Treatment Act.

This interpretation does not conflict with Section 6(3) General Equal Treatment Act. The provision extends the personal scope of application of the General Equal Treatment Act on the grounds stated therein to managing directors, etc. It does not restrict protection for those individuals, however, who are already falling within the personal scope of application of the General Equal Treatment Act because of Section 6(1) sentence 1 no. 1 General Equal Treatment Act.

The termination provision in the service contract violates the prohibition of discrimination in Section 7 General Equal Treatment Act. It includes the defendant's right of termination when a certain age limit has been reached. The right of dismissal is thus tied to one of the grounds mentioned in Section 1 General Equal Treatment Act – age.

Contrary to the assumption of the appellate court, this unequal treatment is also not justified under Section 10 General Equal Treatment Act, since no legitimate objective is apparent. In contrast to the previous instance, the Federal Court of Justice denied the existence of operational and company-related interests as a legitimate objective. There would be no empirical evidence for a need for age limits below the statutory retirement age due to the high requirement profile for managing directors. An analogy with Section 10 sentence 3 no. 5 General Equal Treatment Act is not possible either, since the provision does not apply to termination by dismissal. The Higher Regional Court must now decide whether the defendant is still able to state operational and company-related interests that justify the unequal treatment. To the extent that such interests are part of an overall social policy objective, the Federal Court of Justice considered this to be possible.

Practical tip:

The decision shows that compliance with the General Equal Treatment Act must also be ensured when drafting managing director service contracts. Termination options should not be linked to reaching a certain age limit, otherwise there is a risk that they will be ineffective. Companies should also review and, where necessary, adapt existing contractual arrangements.

With the decision discussed here, the Federal Court of Justice has shifted the coordinates of the work relationship of GmbH external managing director closer to the employment relationship. The principle that members of corporate bodies are not employees within the meaning of employment law provisions because they perform employer functions themselves is thus abolished for the scope of application of the General Equal Treatment Act.

It remains unclear whether in the future the Federal Court of Justice will also consider external managing directors as employees in all other laws – which are based on European law and which are governed by the EU legal concept of employee – and whether it will subsequently apply all Union law employee protection provisions to external managing directors.

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