BAG: German holiday law also applies to the external manager of a Private Limited Company.German vacation law also applies to external managing directors, as long they are employees within the meaning of European law.

According to constant German jurisdiction, employers must inform their employees about their holiday entitlement and the risk to lose the holiday entitlement. If they fail to do so, the holiday entitlement remains valid. In a recent case, the Federal Labor Court had to decide whether the plaintiff, who was employed as a managing director, was to be regarded as an employee in the sense of the Federal Vacation Act.

Summary of the judicial procedure

The plaintiff was employed by the defendant as a managing director. She had to keep a daily working time from 7 am to 6 pm. In the morning she had to carry out “cold calling” on the telephone, in the afternoon she had to offer services on her own initiative and was deployed in the sales force, on customer visits and with control and monitoring tasks. She had to prove that she made 40 telephone calls and 20 customer visits per week. She also conducted job interviews and recruitment negotiations. After six years of service, the parties’ employment contract provided an annual leave of 33 days, which the plaintiff had to apply for from the company. The plaintiff took eleven days of leave in 2009 and none in 2020. The contractual relationship between the parties ended when the plaintiff gave notice of termination on 25^th Oct. 2019 with effect from 30^th June 2020. From 30^th Aug. 2019 until the end of the contractual relationship, she reported sick and no longer provided any services.

The Federal Labor Court ruled that the plaintiff, as managing director, can demand holiday pay in lieu. The Federal Labor Court based its decision on the fact that the federal holiday law implements the provisions of the Working Time Directive. For this reason, the question whether a managing director can be considered an employee in terms of the federal holiday law, must be determined in accordance with EU law. According to the definition of the European Court of Justice, an employee is “any person who, for a specified period of time, performs work for another person in accordance with that person’s instructions in return for which that person receives remuneration.” The decisive factors are therefore the conditions under which the member of the company management was appointed, the nature of the tasks assigned to him, the framework within which these tasks are carried out, the scope of the powers the member holds and how much the member is controlled by the company, as well as the circumstances under which he can be dismissed.

Since the plaintiff was largely subject to the instructions and control of the company in the performance of her work, she was to be qualified as an employee within the meaning of Union law.

Conclusion

The German Federal Labor Courts decision shows once again that external managing directors of a Private limited company are moving ever closer to the status of an employee. The reason for this is, that the ECJ refers to the fact that external managing directors can be freely dismissed and are subject to instructions from the shareholders’ meeting, from which the status of employee then follows.

This ruling is likely to be of great practical relevance. If external managing directors are not informed about their holiday entitlement and the possibility of forfeiture or if the information is not sufficiently transparent, holiday entitlements that have not been taken do not expire at the end of the calendar year but are carried over to the next calendar year and updates accordingly. Since the external managing director of a Private limited Company cannot fulfill the obligation to inform towards himself, the shareholders’ meeting is responsible for that information.

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