What is the difference between removing a managing director and terminating their agreement?

Removal (Abberufung) ends the position as a corporate officer by revoking the appointment, generally independently of the managing director's service agreement. Termination, by contrast, concerns the contractual relationship. Removal does not automatically end that relationship unless the two have been validly linked by contract.

What notice periods apply to a managing director?

The validly agreed termination provisions are decisive, subject to the applicable mandatory statutory minimum periods. In the absence of such a contractual provision, it first depends on whether the contract is for a fixed term and whether it is a genuine employment relationship or a free service relationship. For a genuine employment relationship of indefinite duration, termination by the employer is generally subject to the service-related notice periods of § 20 AngG or § 1159 ABGB. For certain free service relationships, § 1159 para 6 ABGB provides for separate notice periods.

Is a managing director entitled to severance pay after termination?

That depends on the applicable severance system, the legal classification of the contract and any agreements made. Statutory severance pay under the old system is possible where the relevant requirements are met. Under the new severance system (Abfertigung Neu) there is an accrued entitlement with the employee provision fund (BV-Kasse); it cannot be drawn on immediately on every termination.

Kündigung Geschäftsführer (terminating a managing director's service agreement)

Terminating a managing director's agreement: notice periods, the difference from removal and severance entitlements. Engelbrecht Rechtsanwälte, Vienna, explains.

Kündigung of a managing director in Austria – notice, severance, differences | Engelbrecht

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Definition

Termination (Kündigung) of the managing director's service agreement is the unilateral declaration by one party to end a terminable contract in compliance with the relevant notice period and termination date. It must be distinguished from removal (Abberufung): removal ends the position as a corporate officer and with it the power of representation, whereas termination ends the contractual relationship. As a rule, the two legal relationships must be ended separately; they can be validly linked by contract.

Scope of application

Termination of a managing director's service agreement occurs in the following situations:

situations that cannot be resolved by mutual agreement and require an orderly ending
changes in corporate strategy or economic difficulties
a managing director leaving the company as part of a succession arrangement
frequently coordinated with a simultaneous or subsequent removal

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Legal basis

Termination of the managing director's agreement is governed by the following legal sources:

contractual provisions in the managing director's service agreement
notice periods under § 20 AngG for non-shareholder managing directors: non-shareholder managing directors are employees within the meaning of employment contract law and are subject to the Salaried Employees Act (Angestelltengesetz).
§ 1159 para 6 ABGB: termination rules for free service relationships (managing directors with a blocking minority)
Supreme Court (OGH) case law: classification of the contractual relationship and termination of fixed-term managing director agreements

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Deadlines

An overview of the notice periods for terminating a managing director's agreement:

Genuine employment relationship of indefinite duration: Under § 20 AngG the employer's notice period is initially six weeks to the end of a quarter and increases with length of service to up to five months. Other termination dates can be agreed within the limits provided by statute.
Free service relationship: § 1159 para 6 ABGB provides for a notice period of four weeks, or six weeks once the second year of service has been completed, to the 15th or the last day of the month.
Fixed-term contract: It generally ends on expiry of its term. Ordinary termination during the term requires a validly agreed right to terminate.

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Rights and obligations

Rights:

On termination, both parties to the contract have the following rights:

GmbH: the right to terminate the contract, provided ordinary termination is permissible and the notice period and termination date are observed
Managing director: entitlement to the agreed remuneration until the contractual relationship has been validly ended
Managing director: entitlement to severance pay where provided for by contract or statute

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Obligations:

The following obligations apply in the course of termination:

compliance with the applicable contractual and statutory rules on termination
informing the works council, where it is competent in the matter
coordinating the timing of the end of the contract with the removal and with the filing of the change with the commercial register (Firmenbuch)

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Common mistakes

The following mistakes regularly occur when managing directors' service relationships are terminated:

Termination without considering removal: the managing director generally retains the position as a corporate officer until it is ended separately.
Applying a notice period that is too short: in a genuine employment relationship, the statutory employer notice periods cannot be shortened at will.
Type of contract or fixed term not checked: this determines in particular whether and on what conditions ordinary termination is possible.

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Recommended steps

The following steps are recommended for a legally sound termination of a managing director's service relationship:

Coordinate termination and removal in terms of timing and content.
Check the type of contract, any fixed term and the validly agreed termination provisions; then calculate the notice period and termination date.
Check statutory and contractual severance entitlements as well as contributions and accrued entitlements with the employee provision fund (BV-Kasse).
Have the termination declared by the competent corporate body, ensure that its receipt can be proven and observe any agreed form.

Frequently asked questions

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Do you want to end a managing director's service relationship, or have you been given notice? We review your legal position and make sure the notice periods are observed correctly.

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