14 Dec Dismissal director a few months after his appointment
The subdistrict court of Overijssel was recently presented with a case in which the director’s employment contract was terminated by the general meeting within four months after his ‘promotion’ to statutair directeur (director under the articles of association). Although, as a rule, the district court has jurisdiction to hear a dispute between a company and the director, the parties in this case had previously agreed – under Article 96 of the Dutch Code of Civil Procedure – to submit their dispute to the subdistrict court.
What was the issue?
The director had been employed by the company since 2014. He was appointed CFO and statutair directeur on 20 December 2022. Four months later, on 21 April 2023, he was invited to a general meeting at which his proposed dismissal was on the agenda. “The reason for this is that the shareholder has a different expectation of the manner in which the role of CFO (and Director) of the company should be performed.” The director was dismissed at a meeting held on 29 April 2023. He was accused of having a different vision of how the role as CFO should be performed, of not insufficiently taking into consideration the phase that the organisation is in and the changes that entails, and of insufficiently conforming to the policy, on which there was a difference of opinion. The employment contract was terminated effective 30 June 2023. The director received only the transition payment.
Awarding of fair compensation
The dismissal by the general meeting cannot be reversed by the court (Article 2:244(3) of the Dutch Civil Code). The director can therefore only claim fair compensation. This director claimed gross compensation of € 150,000. He even argued that there had been a premeditated plan to appoint him and then ‘get rid of him’ in order to save costs. The court did not go along with the latter accusation, because there was no evidence of premeditated malicious intent on the part of the company, particularly because an interim CFO had been appointed. However, the court did find that there were no reasonable grounds for termination in April 2023. The director was therefore entitled to fair compensation.
On the issue of lack of reasonable cause, the ruling of the subdistrict court of Overijssel is in line with the earlier finding of the Court of Appeal of ‘s-Hertogenbosch (ECLI:NL:GHSHE:2018:1643) in a similar case. In that case, a director had been dismissed three months after being appointed. The Court of Appeal held that a director cannot be dismissed if this ground ‘comes out of the blue’. In the opinion of the Court of Appeal of ‘s-Hertogenbosch, reliance on the ‘difference of opinion’ is meaningless if the director was not even aware of the company’s views.
In awarding fair compensation, the subdistrict court based its decision on the period during which, in its view, the employment contract would have continued if the company had made it clear to the director what was expected of him, and that he was required to comply. The subdistrict court estimated that the employment contract would have continued for about four more months. This amounts, rounded off, to fair compensation in the gross amount of € 37,500.
Opinion
That four-month period estimated by the subdistrict court is difficult to comprehend. It is up to the employer to tell the employee how it wants things to be done; only if the employee refuses to comply could a difference of opinion arise. The subdistrict court’s assessment that such an impasse would probably have arisen after four months is remarkable, to say the least.
In the case before the Court of Appeal, it was ultimately emphasised that it was very difficult, if not impossible, to determine how the director’s career would have progressed if he had not been dismissed. Taking into account an ample period during which the director would have to deal with a significant drop in salary, and the very careless way in which he had been dismissed, the Court of Appeal set the fair compensation at a (gross) amount of € 100,000.
The two different directors in the two different cases had almost the same salary. The director who won his case before the Court of Appeal therefore received almost three times as much. The price tag of four months’ salary for improper dismissal of a director who was dismissed after four months already therefore seems rather low.
Please contact Michiel van Haelst (+31-6-553 944 87) if you have any questions on this subject.