German dismissal law is built around employees. The further up you are, the more the rules change. Senior executives (leitende Angestellte) are still employees, but their employer can end the relationship more easily. Managing directors (Geschäftsführer) of a limited company are usually not employees at all, and their protection depends almost entirely on their contract.
For expats in leadership roles, this matters. Many come from systems where executive contracts work very differently, and many hold titles that sound senior but do not change their legal status.
Who Is a Senior Executive?
In dismissal law, you are a senior executive if you are an employed manager, such as a head of a business unit or a plant manager, and you can independently hire or dismiss employees. The power must be real and significant, not just on paper. Managing directors who are legal representatives of the company are a separate case, see below.
Other laws define the term more broadly. For example, senior executives are not represented by the works council and are not covered by the Working Time Act. Being a senior executive under one law does not automatically mean being one under another.
Most employees with "Director", "VP" or "Head of" titles in international companies are not senior executives in the legal sense. They have the full protection of normal employees.
Senior Executives: Reduced Protection
If you are a senior executive under the Dismissal Protection Act:
- The employer still needs a reason for the dismissal, and you can challenge it within three weeks.
- But the employer can request dissolution. If the dismissal is invalid only because it lacks a valid reason, the employer can ask the court to end the employment against severance, without having to justify this. This is not possible if the dismissal is invalid for other reasons, for example because a required hearing did not take place.
- The court sets the severance, up to twelve months' salary, or up to 15 or 18 months for older employees with long service.
In practice, this means you can rarely keep your job against the employer's will. The negotiation is about the amount.
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Managing Directors: Two Separate Relationships
A managing director of a GmbH has two legal relationships with the company:
| Appointment | Service contract | |
|---|---|---|
| German term | Bestellung | Geschäftsführer-Dienstvertrag |
| What it is | Your position as a legal representative of the company | Your contract: pay, benefits, notice, non-compete |
| How it ends | Removal by shareholder resolution, at any time and without reason, unless the articles say otherwise. In large companies with a supervisory board, different rules apply | Notice or dismissal for cause under the contract and the law |
| Protection | Very little | Depends on the contract |
Removal from office ends your role as managing director, usually immediately. It does not automatically end your contract. You keep your salary until the contract ends. Many contracts, however, contain a clause that the removal also counts as notice of the contract, and the company can give notice at the same time.
Ending the service contract. The Dismissal Protection Act generally does not apply. The contract may run for a fixed term, often three to five years, or have a notice period. If it says nothing, the statutory notice periods for employees generally apply to managing directors who do not control the company. A dismissal for cause must reach you within two weeks after the shareholders' meeting learns of the reason. A contract can also make the Dismissal Protection Act applicable.
Former Employees Promoted to Managing Director
If you were an employee before becoming managing director, your old employment contract generally ends when you sign a written managing director contract. You then lose the protection of the Dismissal Protection Act. If there is no written managing director contract, the old employment may continue in the background. This can matter when you are removed from office.
Social Security and Unemployment Benefit
Managing directors who do not control the company, typically those with less than half of the shares and no blocking minority, are usually insured like employees. They can claim unemployment benefit after leaving if they have twelve months of insured employment within the last 30 months. A blocking minority only counts if it is set out in the articles of association. A termination agreement can trigger a blocking period. Controlling shareholder-directors are not insured. If you are unsure of your status, a formal status assessment by the pension insurance can clarify it.
Severance and Negotiation
Exits at this level are usually agreed in a termination agreement. Typical points:
- severance, often based on the remaining contract term,
- the end date and release from duties,
- bonus and long-term incentives, including good leaver status for equity. See good leaver and bad leaver clauses,
- discharge (Entlastung) by the shareholders and D&O insurance cover,
- the post-contractual non-compete and any compensation. Unlike for employees, the law does not require compensation for a managing director's non-compete, so it must be negotiated,
- a public communication and a reference.
Removed from office or asked to step down? Have your service contract checked before you negotiate.
Get Your Free Case Review →Where to Go to Court
Senior executives go to the labour court. Managing directors usually go to the civil courts, where the losing side pays both sides' costs and a lawyer is required. If you were removed from office before the court decides on jurisdiction and claim that you are really an employee, the labour court can be responsible. This affects your cost risk and your strategy. See labour court proceedings.
Points for Expats
- No "at-will". Even managing directors cannot simply be dismissed from their contract without notice unless there is a serious reason.
- Fixed-term contracts. Many managing director contracts cannot be terminated early with notice. If you are removed early, the remaining salary is a strong negotiating position.
- Residence permit. Removal from office can affect a permit tied to your role. Clarify this before agreeing a date. See losing your job and your residence permit.
- Discrimination protection. Rules against discrimination, for example on age or gender, also protect managing directors in important respects.
Frequently Asked Questions
My title is Director. Am I a senior executive?
Probably not. Unless you can independently hire or dismiss a significant number of employees, you have the same protection as other employees.
Can I be removed as managing director without a reason?
Usually yes, unless the articles of association require a reason. But your contract and your salary continue until the contract ends.
Does the works council have to be consulted?
Not for senior executives under the Works Constitution Act or for managing directors. The employer must only inform the works council about dismissals of senior executives. If there is a committee of senior executives (Sprecherausschuss), it must be heard before the dismissal. If the employer wrongly treated you as a senior executive and did not hear the works council, the dismissal is usually invalid.
Do I get severance as a managing director?
There is no legal right. It depends on your contract and your negotiation. The remaining term of your contract is usually the key factor.
