The Timing Trap in Managing Director Dismissals
If a company wishes to part ways with a managing director, the position as legal representative of the company and the contractual relationship must be considered separately under German law. Their termination must be coordinated in terms of timing. If the notice of termination is served after the revocation of the appointment, the exclusion of managing directors from general protection against dismissal under Sec. 14 para. 1 no. 1 of the German Employment Protection Act (KSchG) no longer applies. If the employment is based on an employment contract, the managing director whose appointment has been revoked may invoke protection against dismissal with regard to the subsequent termination. This is illustrated by a judgement of the Federal Labour Court (BAG): The company served a termination on a managing director employed under an employment contract about five months after having revoked his appointment and tried to rely on the exclusion from protection against dismissal – without success (ruling dated 18 June 2026 – 2 AZR 89/25).
The case: Revocation from office first, termination months later
The case relates to a scenario seen quite often in groups of companies: The claimant started his employment at the defendant company in April 2021 under a contract expressly designated as an ‘employment contract’. His period of service of over 20 years with other group companies was expressly recognized. In addition to the role of managing director, the contract also provided for the assignment of other reasonable and equivalent tasks. In May 2021, the claimant was appointed managing director. The shareholders’ meeting revoked his appointment with immediate effect on 1 February 2023. It was not until the end of June 2023 that he received notice of termination of his employment contract. The company disputed the existence of an employment relationship and argued that protection against dismissal was in any event excluded because the termination concerned the contractual relationship as a managing director.
What matters: Managing director status when notice is received
The Federal Labour Court clarifies: “Sec. 14 para. 1 no. 1 KSchG does not apply if the position as a managing director no longer exists at the time the notice of termination is received.” Hence, if the position as a managing director still exists at that time, the application of dismissal protection is excluded – irrespective of whether the underlying contractual relationship is an employment relationship. A revocation of the appointment occurring only after receipt of the notice of termination does not change this. According to a new clarification of the Federal Labour Court, it shall be sufficient for the exclusion of dismissal protection to apply that the notice of termination is received at the same time as the declaration of revocation. In the present case, the position as managing director had long since ended when the notice of termination was received. The case nevertheless illustrates how important it is to issue the notice of termination prior to the revocation of the appointment or at the latest simultaneously, in order to pre-empt disputes over any applicable protection against dismissal. By precaution, the safest recommendation is still to revoke the appointment at the earliest on the day following the notice of dismissal.
No general exception for the managing director’s employment contract
According to the Federal Labour Court, the exception of managing directors from the general protection against dismissal is linked to the person’s current position as a managing director, not to a specific contract. The fact that the terminated contractual relationship originally served the purpose of the managing director’s role therefore does not justify a continuing exclusion from protection against dismissal. Nor does a supposed lack of need for social protection or belonging to the ‘employer camp’ in itself justify such an exclusion.
The consequence: The termination was ineffective
As the claimant was no longer a managing director when the notice of termination was received and an employment relationship still existed, the termination required valid grounds for dismissal under Sec. 1 KSchG. The company had not asserted such justification; nor, according to the Federal Labour Court, was any such justification apparent. The termination was therefore ineffective. The Federal Labour Court did not need to rule on the additional complaints regarding the lack of works council hearing and the authority of the signee to issue the notice of termination.
Practical guidance
If a company wishes to part ways with its managing director, the notice of termination of the underlying employment or managing director’s service contract should be served prior to the revocation of the appointment, so that the exclusion from general protection against dismissal applies. In practice, a transparent, step-by-step approach with documents bearing different dates is recommended and helps to avoid dispute and difficulties of proof that the handover was at least “simultaneous” as required by the Federal Labour Court. Furthermore, any termination of a managing director relationship as well as the revocation of the appointment require corresponding resolutions of the shareholders’ meeting.
In particular, the contractual basis for managing directors in groups of companies should be examined: if the basis is an employment relationship, a notice of termination received only after the revocation of the appointment may be subject to general protection against dismissal, meaning that the sequence of events has a decisive influence on the requirements for a valid termination.
