CFO De Volksbank did have an employment contract after all (instead of an assignment contract)
On 30 May 2022, the Arnhem-Leeuwarden Court of Appeal ruled in the appeal of the dismissed executive director (CFO) of De Volksbank. The Court of Appeal found – unlike the District Court – that the CFO did have an employment contract after all, because the agreements made and the implementation of those agreements most resembled an employment contract. As a result, the CFO is entitled to transitional compensation and equitable remuneration of EUR 270,000 gross. A far-reaching decision. What preceded this decision?
As of 1 January 2020, the CFO and De Volksbank had entered into an agreement titled: “Agreement for assignment of statutory director”. At some point, disagreement arose between the CFO and the CEO, co-managing director at De Volksbank. On 11 August 2020, the CFO received a letter informing him that the Supervisory Board (“SB”) would shortly decide on his dismissal. The letter stated that the dismissal of the employee as a member of the Management Board was one of the necessary measures in a broader package to address the (under) performance of the Management Board. Specifically with regard to employee, the Supervisory Board determined that in the short time since he took office, the necessary basis of trust had completely disappeared, both in relation to the Supervisory Board and within the Management Board. On 12 August 2020, the CFO reported sick and one day later received an invitation to the general meeting of shareholders where his dismissal as director under the articles of association was on the agenda. After the meeting of dismissal on 5 September 2020, the CFO was dismissed as director.
This case revolves around the following questions: (1) how should the agreement between De Volksbank and the CFO be qualified and (2) is the CFO entitled to the payments he has requested resulting from an (alleged) employment contract, now that that contract has ended.
Qualification of the agreement
Unlike the court, the court of appeal is of the opinion that there is (has been) an employment contract between the parties, because the agreements made and the implementation given to them most resemble an employment contract. The court of appeal considers that the element ’employed by’ is the distinguishing element between a commission contract and an employment contract. In any case, the Court of Appeal considers the presence of a relationship of authority established. It follows from the agreement and the management regulations that the Supervisory Board has the power to instruct the CFO. In addition, the Supervisory Board conducts an annual assessment interview. The Court of Appeal was of the opinion that there were not many other factors pointing to an employer-employee relationship between De Volksbank and the CFO. According to the Court of Appeal, this is also not necessary, because a director simply has an autonomous position.
What weighs more heavily for the Court of Appeal is that it could not find any convincing substantiation for the qualification of ‘assignment’. After all, the CFO did not run any commercial (entrepreneurial) risks and it concerned a full-time position with a ban on ancillary activities, which was part of the permanent job structure of De Volksbank. Therefore, the CFO had no other clients and, in fact, there was no room for this. The way in which the contract was executed also points to an employment contract rather than to an agreement for services, according to the court of appeal. The CFO received a monthly payslip generated by the same system used for all salaried employees. Moreover, there was no indication that the CFO had actually been able to negotiate on key points of the contract offered; a contract which De Volksbank wanted to keep as uniform as possible. Therefore, also in view of these factors, the court assumes an employment contract. And that leads to the fact that the CFO enjoyed protection against dismissal during illness.
Ban on notice during illness
If a director under the articles of association is dismissed by the general meeting of shareholders, his or her employment contract also ends. This is only different if there is a prohibition on giving notice. In that case, the position of director under the articles of association does end, but the employment contract does not. The ‘normal’ employee with protection against dismissal can choose to accept the dismissal and claim fair compensation instead. This does not apply to a director under the articles of association, as the dismissal cannot be reversed. As a result, the (wrongly) terminating shareholder automatically owes equitable remuneration.
The question in this case is whether the CFO rightly claims his termination to be in violation with the prohibition on giving notice during illness. The CFO called in sick shortly before his formal dismissal procedure started and after he had been told by the Supervisory Board that he would be dismissed. The judge is of the opinion that the ban on dismissal is indeed applicable. De Volksbank’s disregard for this (by terminating the employment anyway) entitles the CFO to fair compensation. The court ordered De Volksbank to pay EUR 270,000 gross in equitable remuneration. In the CFO’s case, this is equivalent to nine gross monthly salaries. The Court of Appeal is of the opinion that the employment contract would probably have been terminated nine months after the effective date of the dismissal. Furthermore, the CFO is entitled to transitional compensation and payment of holidays.
What does this ruling mean in practice?
The question of whether there is an employment contract or a contract for services remains topical. In many cases, it cannot be determined or agreed beforehand in a watertight manner that this is an assignment agreement and not, by definition, an employment contract.
Nevertheless, this remains a striking judgment since, unlike the court, the court paid little attention to the social position of the CFO. When the CFO applied for the job, he was a partner in a large, renowned international accounting firm and knew the banking sector well as a consultant. According to the court, the CFO knew that De Volksbank wanted to enter into an assignment agreement with him and must have realised that this meant he would not be working on the basis of an employment contract. The CFO joined the highest executive body of the bank against considerable remuneration. For these reasons, the court saw enough reason to judge the contract ‘at face value’, namely as an agreement for services. The court of appeal saw this differently and came to the conclusion that there was an employment contract.
This ruling means that companies would be wise to re-assess their assignment agreements with managers/directors as well as the execution thereof. The phenomenon of platform labour at companies such as Deliveroo and Uber also raises the question of whether an employment contract or an agreement for services has been concluded. Earlier this year, we wrote an article about the judgment of the Court of Amsterdam that the agreement for services of Uber taxi drivers should also be qualified as an employment agreement. Furthermore, it is not uncommon (even after takeovers) that companies enter into an assignment contract with the director of the company. Please note that with this Court decision on Volksbank, this is no longer a foregone conclusion.
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