Termination of director’s management agreement in the Netherlands: AMS explains!

After his recovery from illness, a Dutch director wanted to return to work. However, the company had appointed another director and unilaterally terminated the management agreement. The director started interlocutory proceedings. Is there a chance of success in the Netherlands of these interlocutory proceedings concerning the termination of the management agreement? Dutch employment Law Lawyer Sander Schouten explains the ruling.

Statutory Director with a management agreement

The director in question had been appointed as a Statutory Director in accordance with the company’s articles of association A document, drawn up when a Dutch company or legal person is set up, and which regulates the operations of the company and defines its purpose.
» Meer over articles of association Articles of Association. Also, a management agreement had been concluded with the director. The director had been off work because of serious illness. In consultation with the General Meeting of Shareholders, he had been honourably discharged. This meant that another director could be appointed who would (temporarily) replace the director. It was agreed, however, that the director would be able to resume his management duties after he had recovered. The management agreement continued in the amended form.

Termination of the management agreement

The director’s recovery took longer than expected. He eventually returned, but not in the role of director. When a conflict arose about the way in which the company was being managed by the new management, the company terminated the management agreement.

General Meeting of Shareholders appoints and dismisses directors

In the interim relief proceedings, the Dutch court in preliminary relief proceedings held that the mere fact that the director had recovered from illness did not mean that he could automatically return as Statutory Director. After all, this appointment is reserved for the General Meeting of Shareholders, which had not taken a decision on this matter.

Dutch court: Restrictive effect of reasonableness and fairness

The director referred to the reinstatement agreement that had been made between the parties. Surely this must be complied with? The Dutch court considered that this was not the case and applied the restrictive effect of reasonableness and fairness: Given the circumstances, it is unacceptable by standards of reasonableness and fairness that the company still had to comply with the agreements made in 2012.

Circumstances in favour of the company

The court pointed out that the recovery had taken much longer than anticipated. In the meantime, the way in which the company was being managed had changed radically, and a management team had been appointed. Finally, the relationship between the director on the one hand and the company and the (new) management team on the other had been severely disrupted. In this case, the company’s interest in deviating from the agreements prevailed.

Unilateral termination of the management agreement

The director then claimed that the management agreement could not simply be terminated unilaterally. But on this point too, the director had to back down. A management agreement is an assignment agreement. Not an employment contract. Whereas in an employment relationship, the employee is protected against unilateral termination in the Netherlands, this protection generally does not apply to the assignment. Under the contractual provisions, the parties in the Netherlands are free to terminate the management agreement early at any time, with due observance of the six-month notice period.

No protection under labour law for the Director

According to the director, reference should be made to the provision of the Articles of Association stating that amendments to individual employment contracts require the approval of the General Meeting of Shareholders. The court considered that an analogous application of this provision was not an option. Again, this is not an employment contract. It should be noted that the parties had emphasised in the management agreement that it was not an employment contract. In short, the company was authorised to unilaterally terminate the management agreement with due observance of the notice period. The director is not entitled to any (derived) employment protection.