Reasonable grounds also "simply" required for dismissal of a director

09 Jul 2019

As of the implementation of the Act Work & Security (‘WWZ’), case law has seen some uncertainty with regard to the application of the system of dismissal grounds in case of a statutory director in view of his extraordinary position from an employment law perspective. The Amsterdam District Court has recently issued a judgment that puts an end to this lack of clarity: there also needs to be a reasonable ground for the dismissal of a director.

Jasper Pot

A director has a special position compared to a "regular" employee. A director enjoys with his employer both a company law relationship and an employment law relationship. Established case law shows that, in principle, termination of the corporate relationship also results in the employment relationship being terminated.

Therefore, an employer does not have to request prior approval from the court for the dismissal of a director. In view of that special situation, a discussion soon arose as to the consequences this had for the requirement of a reasonable ground for dismissal. Under old law, it was more or less an accepted fact that if a director no longer enjoys the confidence of the shareholders, this in itself constitutes sufficient justification for a possible dismissal. Given his position as the highest in rank, (building) a performance file is actually not common practice.

The WWZ, however, does not make a distinction between certain employees, which means that also the director would automatically fall within the scope of the grounds for dismissal system. In first instance this led to a division in case law. The District Court of The Hague, for example, ruled that the director is subject to less stringent requirements, in view of his special position, whereas the Rotterdam District Court ruled that a director should have greater protection, given that his corporate relationship with the company can be terminated at any time, resulting in the simultaneous termination of his employment contract.

The Amsterdam District Court now seems to have settled the matter with its decision dated 14 March 2019: an employer must also have reasonable grounds for the dismissal of a director. The requirements for this reasonable ground are not lighter or heavier than those for a regular employee. This means, among other things, that in the event of underperformance, the employer must offer the director an improvement path to enable him to improve his performance. Redeployment options for the director must also be investigated. If the employer fails to do so and the director is dismissed without fully-fledged grounds, the director can claim an equitable remuneration.

It is therefore of great importance that an employer ensures that the director’s performance is also well documented.