Executive vs Employment Contract – Now the Constitutional Court
The question, if an employment agreement with a top executive is legally valid, is already a legal classic. The Constitutional Court now upheld a verdict of the Supreme Court issued earlier this year on simultaneous executive service agreements and employment contracts. Such arrangements with the company’s top executives shall no longer be generally considered invalid. As a basic rule, an employment relationship may not be rightfully established between a company and the company’s top executives. However, certain aspects such as working hours, holidays or redundancy payments may be agreed to be governed by the Labor Code. In any case, mandatory provisions of corporate law applicable to top executives cannot be excluded or limited by such agreement. This applies for instance to the shareholders meeting´s right to remove the managing director with immediate effect.
This raises hopes for agreements signed in the past, which were previously considered invalid. Despite the latest developments, it remains advisable to avoid any concurrence and to review the terms and conditions of any executive service agreement carefully.