Contract of employment as Director with third-party company - no termination of the employment relationship

The conclusion of a contract of employment as Director with a company other than that of the employer does not result in termination of the employment relationship. There is no agreement between the parties to the contract of employment that satisfies the requirement of the written form under Section 623 BGB.

The claimant had been employed with the defendant, a central organization of the company health insurance funds, since 1989. In 2008, the defendant formed a joint company, B GmbH, together with several substitute private health insurance funds and company health insurance funds, and appointed the claimant as its Director. The claimant concluded a contract of employment as Director with B GmbH with effect as from 1 September 2008. By letter dated 12 March 2010, the defendant terminated the employment relationship with the claimant extraordinarily and immediately, as well as serving ordinary notice of termination as a contingent measure. The corresponding legal action for unfair dismissal was successful in all instances.

Violation of the written form

The BAG stated clearly that the employment relationship had not ended as of the time of the notice of termination dated 12 March 2010, despite the conclusion of a contract of employment as Director with B GmbH. In the opinion of the court, this contract did not include any agreement between the parties concerning the termination of the employment relationship that satisfied the requirement of the written form under Section 623 BGB. With reference to its previous case law, the court stated that the conclusion by an employee of a contract of employment as Director does, in case of doubt, constitute the implied termination of the previous employment relationship, and that this regularly satisfies the requirement of form under Section 623 BGB.

Contract parties

However, this only applies if the parties to the contract of employment as Director are simultaneously the parties to the contract of employment. Otherwise, there is no written legal transaction between the employer and the employee which could constitute an agreement on termination of the employment relationship. According to the BAG, there was no room for the assumption that the contract of employment as Director on which the decision was based was a three-page contract or that the defendant had been represented by B GmbH at the time of conclusion of the contract, particularly as Section 126 BGB requires the naming of the parties and any representation relationships in the contractual document. This was not the case in the matter at hand, with the result that the employment relationship was still valid at the time of notice of termination.

Practical tip

Through the decision at hand, the BAG has further developed its previous case law concerning the ending of employment relationships through the conclusion of contracts of employment as a Director, and limited the possibility of implied termination of the employment relationship to - written - agreements involving the parties to the contract of employment. In practice therefore, particular attention must be paid to ensuring that the termination of the employment relationship is explicitly regulated and that the corresponding contract document - irrespective of whether this is a separate termination or a three-page agreement – is correctly signed by the parties to the employment contract, stating any representation relationships.

Summary

In the event of „promotion“ of an employee to Director, a written agreement should always be made between the employer and the employee concerning termination of the employment relationship, in order to prevent resurrection of the employment relationship - and the related protection against dismissal - following ending of the work as Director.