Caution advised when recalling a managing director of a GmbH after the dismissal of an employment relationship

Labour Court jurisdiction could be established even after a managing director has filed a lawsuit

At first sight, the question as to whether a managing director may file a lawsuit against the dismissal of his employment relationship before the Labour Courts seems to await a clear answer. Under Section 2(1) no. 3 of the Labour Court Act (Arbeitsgerichtsgesetz – ArbGG), Labour Courts only have jurisdiction for disputes arising from or relating to the existence of an employment relationship. Under Section 5(1), sentence 3 ArbGG, board members are not considered employees. Therefore, managing directors are generally barred from legal processes before Labour Courts.

However, the affirmation of the jurisdiction (of the Labour Courts) would offer several advantages to a managing director: advance payments on legal fees do not need to be provided for proceedings before the Labour Courts. In case of succumbing to the case, the attorney’s fees of the sued company would not have to be covered. After all, Labour Courts are more likely to apply employee protection regulations to the managing director than Civil Courts. On the other hand, proceedings before Labour Courts are only of interest to companies due to their speed (when carrying out legal proceedings). Against this background, the question increasingly arises in practice whether Labour Courts could have jurisdiction for cases in which the managing director is recalled or resigns from office once his employment relation-ship has been terminated.

Previous Jurisprudence

Until now it was clear that the jurisdiction of the Labour Courts was only caused by recall and resignation if these occurred before the managing director had applied for protection against dismissal under the German Protection Against Dismissal Act (Kündigungsschutzgesetz – KSchG). Accordingly, from the perspective of the particular employing company it was possible to dismiss the employment relationship in the first instance and recall the managing director only after he had filed a lawsuit. As the Labour Court was obligated to refer the process to the Civil Courts, it was possible to avoid employee-friendly jurisprudence, which the Labour Courts would apply.

New Jurisprudence

However, with its two decisions of 22 October 2014 (10 AZB 46/14) and 3 December 2014 (10 AZB 98/14), the Federal Labour Court has now abandoned this approach. The effective date of the filing of a lawsuit does no longer represent the absolute time limit for the elimination of the effect of the legal fiction. For reasons of procedural economy, changes regarding the establishment of the Court’s jurisdiction such as recall or resignation from office will remain substantial until a legally binding judgement has been reached in a following appeal procedure.

Impacts on practice

The Federal Labour Court thereby explicitly extends the potential jurisdiction of the Labour Courts. Against this background, companies need to avoid a “premature” recall of managing directors by all means and should develop (alternative) strategies when handling the issues of jurisdiction. However, new options should also be carefully examined from the managing director’s perspective. Particularly, resigning from office for the purpose of establishing jurisdiction of the Labour Courts is not free of risks. In case of doubt, a comprehensive evaluation is demanded on both sides, regarding the chances and risks linked to the relative options that do not only include the cost perspective, but also risks of liability and consequences on corporate-policies.