Quick Hits
- Germany’s Federal Labor Court held in a recent decision that if the body with authority to represent the company authorizes individual members to represent the company alone, the termination notice may be rejected if proof of that authorization is not attached.
- A rejection within one week is generally still considered prompt.
The Case—Termination by Two of Three Supervisory Board Members
The parties disputed the validity of two termination notices. The managing director of the defendant limited liability company (Gesellschaft mit beschränkter Haftung (GmbH)) was employed as managing director under an employment agreement. The company’s articles of association provide for a supervisory board (Aufsichtsrat) responsible for appointing and removing managing directors and for concluding and terminating their employment agreements.
The three-member supervisory board unanimously resolved to remove the managing director and terminate the managing director’s employment relationship. In a letter dated August 11, 2023, the company gave ordinary notice of termination. The termination notice, however, was signed by only two of the three supervisory board members—including the chair—and no proof of authority for the two acting supervisory board members was attached. The managing director received the termination notice on August 14, 2023, and was removed as managing director at the same time.
On August 18, 2023, the managing director rejected the termination notice because no proof of authority had been submitted and challenged the authority of the two signatories. The managing director filed a lawsuit challenging the termination of the employment relationship. On December 7, 2023, the company, in a pleading transmitted electronically to the Labor Court (Arbeitsgericht), terminated the employment relationship without notice as a precautionary measure. After the company had disputed the existence of an employment relationship before the labor court, it no longer disputed it on appeal.
The Decision—No Proof of Authority, Terminations Invalid
The BAG affirmed the lower courts’ decisions and held both termination notices invalid.
In this case, the BAG found that an employment relationship existed because the company no longer disputed its existence, at least on appeal.
The first, ordinary termination was invalid because the managing director promptly rejected it by analogous application of Section 174 sentence 1 of the German Civil Code (Bürgerliches Gesetzbuch (BGB)). No authorization for the two acting supervisory board members had been presented to the managing director, and the managing director had not previously been informed of such authorization.
The authority to remove and discharge managing directors had been transferred by the company’s articles of association to the supervisory board as a whole. No authorization existed for the two acting supervisory board members to act on behalf of the supervisory board. The supervisory board resolution, which at most could have implicitly granted such authorization, had also not been presented to the managing director.
The company had not informed the managing director of such authorization either, by analogous application of Section 174 sentence 2 BGB.
In the BAG’s view, the rejection on August 18, 2023—four days after the termination notice was received—was prompt. Only after more than one week has elapsed is a rejection no longer prompt absent special circumstances of the individual case.
The subsequent extraordinary termination without notice was invalid for lack of proper form. A termination contained in a pleading transmitted electronically does not satisfy the written-form requirement. Section 46h of the German Labor Court Act (Arbeitsgerichtsgesetz (ArbGG)), under which a termination contained in a pleading now generally satisfies the written-form requirement, did not enter into force until July 17, 2024.
Takeaways
Although the present case concerned the discharge of a managing director, for which the supervisory board was responsible, the BAG’s reasoning is relevant to employee discharges as well. In that context, the decision indicates that original proof of authority is required if, under a joint-representation arrangement, only one managing director without sole authority to represent the company signs the termination notice. Without such proof, the termination notice may be rejected. A prompt rejection would render the termination invalid for lack of proof of authority.
Ogletree Deakins’ Berlin office will continue to monitor developments and will post updates on the Cross-Border and Germany blogs as additional information becomes available.
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