German court clarifies when managing directors can rely on dismissal protection

The German Federal Labour Court (Bundesarbeitsgericht, BAG) decision clarified that if a person has already been removed from office as managing director by that point, the statutory exclusion under section 14(1) of the KSchG no longer applies.

The protections provided by the KSchG are significant in practice. Under the Act, an employer cannot simply terminate an employee without reason. Instead, a dismissal must be socially justified, meaning it must be based on recognised grounds such as misconduct, capability issues or genuine business requirements. Employers must also be able to demonstrate that those grounds exist if a dismissal is challenged in court.

As a result, a former managing director who falls within the scope of the Act may be able to challenge their dismissal and seek reinstatement or negotiate a settlement if the employer cannot establish a legally valid reason for termination.

Sarah Klachin, Munich-based employment law expert at Pinsent Masons, said: “The BAG’s decision makes careful planning at the start of a managing director’s exit more important than ever.”

“For employers, the message is simple. When parting ways with a managing director, timing matters. Removing the individual from office before terminating the underlying contract may fundamentally change their legal position. If the contractual relationship qualifies as employment, a former managing director may regain general dismissal protection once their corporate office has ended”, she said.

The decision is particularly relevant for German companies planning the exit of managing directors. Removal from office and termination of the underlying contractual relationship are legally distinct steps, and their sequence can materially affect an individual's dismissal protection.

“Employers should therefore determine in advance whether the underlying relationship qualifies as an employment or service relationship and coordinate the timing of the removal from office and termination accordingly”, said Klachin.

Removing a managing director from office before serving notice may result in the individual being able to rely on general dismissal protection.

Klachin said: “Companies should avoid treating removal from office and contractual termination as separate administrative exercises. Both steps should form part of a coordinated exit strategy from the outset. Before taking action, employers should assess the potential application of the German Dismissal Protection Act and, crucially, the appropriate sequence of the measures."