Director’s appointment resolution must be recorded in writing

Introduction

The Dutch dismissal system is internationally renowned for its preventive dismissal assessment. In the case of a statutair directeur (director appointed under the articles of association), however, the UWV (Employee Insurance Agency) or the court need not make such an assessment in advance. Such a director may be dismissed at any time by the general meeting or the supervisory board. Article 2:298a of the Dutch Civil Code provides that a court cannot restore the employment contract of a (former) director. Because a director has less employment protection, it may be worthwhile for him or her to challenge his or her position under the articles of association after a notice of dismissal, and thus to obtain the protection of an ‘ordinary’ employee. A second line of defence for a director may consist of calling in sick, since the ban on dismissal in the event of sickness also applies to directors.

Court of Appeal of The Hague and director’s appointment resolution

In a recent judgment of the Court of Appeal of The Hague of 12 December 2022 (ECLI:NL:GHDHA:2022:2351), the CEO disputed having been validly appointed as a director under the articles of association and requested reinstatement of the employment contract with retroactive effect on the grounds of dismissal in breach of the prohibition on dismissal (sickness). The Supreme Court ruled as early as 1977 already that, in the absence of an appointment, no board membership exists (HR 2 June 1977, NJ 1978, 238). A director may be registered in the Trade Register as a director and have been acting as a director for many years, but in the absence of an appointment resolution, he or she has not been a director. And yet, even now in 2022, a written appointment resolution is still often missing.

At Reliability Solutions, the resolution on the appointment of the CEO had been adopted without a meeting being held, by a unanimous vote (Article 2:238(1) of the Dutch Civil Code). That was possible in that case because the shares were held by a single legal entity. But the question that remained was whether that resolution had been recorded anywhere in writing, because the law requires that votes be cast in writing (Article 2:238(2) of the Dutch Civil Code). A tacit appointment is impossible. Reliability Solutions was saved by the CEO’s employment contract. It confirmed that the appointment resolution had been adopted by the general meeting the day before. The court did not require a separate written and signed document confirming the appointment. In the court’s opinion, it sufficed that the CEO had accepted the appointment by signing the employment contract. Even if that had not been valid, the CEO ratified the resolution under Article 2:14(2) of the Dutch Civil Code by signing the employment contract.

The next question was whether a ban on termination during sickness applied (Article 7:670(1) of the Dutch Civil Code). The Court of Appeal was of the opinion that (medical) documents showed that the CEO was ill at the time he was summoned to appear before the general meeting. He was therefore unfit for work, from which it follows that the termination was in breach of the ban on termination under Article 7:670(1) of the Dutch Civil Code.

But after the company had been found to have acted in breach of the ban on termination, it nevertheless escaped unpunished a second time. This was due to a legal technicality: the Court of Appeal could not order the reinstatement of the employment contract because Article 2:244(3) of the Dutch Civil Code prevents this. But the Court of Appeal nevertheless found, for the record, that even if it did have the power to do so, there would be no grounds for reinstatement, because it was clear to it that the relationship between the parties had been seriously and irreparably damaged.

The ultimate outcome of the legal battle is 2-1, because the Court of Appeal awarded the CEO fair compensation in the amount of the lost salary over the period during which the employment contract would most likely have continued (in the event of fictitious termination of the employment contract).

Conclusion

The lesson to be learnt from this case is that a company is well advised always to record an appointment resolution in writing. In this case, the company got away with proving the appointment via the employment contract. The Court of Appeal’s judgment is accurate, because the appointment resolution had been adopted before the day on which the employment contract was signed, and expressly referred to that appointment. If the resolution had not yet been adopted and the employment contract referred to an appointment resolution yet to be adopted, the company would undoubtedly have been faced with a different outcome (see also Amsterdam Court of Appeal 29 March 1990, NJ 1991/81).

Please contact Michiel van Haelst (+31-6-553 944 87)  if you have any further questions about this subject.

This article was published in the Newsletter Vestius of December 2022