I. Employment Law and Corporate Law Background

When terminating the engagement of a managing director of a German limited liability company (Gesellschaft mit beschränkter Haftung, GmbH), it is important to distinguish between the managing director’s corporate office (Organstellung) and the service agreement (Anstellungsverhältnis). The corporate office can generally be revoked at any time, unless otherwise stipulated in the articles of association. However, the underlying service agreement cannot be terminated at will.
According to BGH case law (judgment of 10 May 2010 – II ZR 70/09), the managing director’s service agreement is a contract for services (Dienstvertrag) aimed at managing the affairs of the company by exercising the office of managing director. The managing director is therefore usually not regarded as an employee and does not benefit from the full range of statutory employment protection afforded to employees.
When terminating an employment agreement with notice, section 622 of the German Civil Code (BGB) sets out statutory notice periods. In contrast, for service agreements (that do not constitute employment relationships and to which section 622 BGB therefore does generally not apply), the considerably shorter notice periods under section 621 BGB apply. According to this logic, the short notice periods under Section 621 BGB would also apply to managing directors (Geschäftsführer) of a GmbH. However, according to the case law of the BGH, the notice periods applicable to employees under Section 622 BGB must also be applied to managing director service agreements (with managing directors that are not majority shareholders). The BGH considers this to be necessary due to a drafting error on the part of the legislator. The longer notice periods under Section 622 BGB may, according to the BGH, also not be contractually reduced to the detriment of the managing director (BGH judgment of 29 January 1981 – II ZR 92/80).
Under German law, a legal dispute concerning the dismissal of a managing director can be heard either before the civil courts or the labour courts. The labour courts have jurisdiction over (among other things) disputes between employees or employee-like persons and employers arising from employment relationships. However, access to the labour courts can already be granted solely because of the claimant’s assertion that they are an employee. If both the court’s jurisdiction and the merits of the case depend on whether the claimant is in fact an employee, the court does not already decide this question when determining its own jurisdiction. This means that the labour courts have jurisdiction, for example, if the claimant objects to the termination of a relationship which they believe is an employment relationship, while the defendant considers it a service contract, and the claimant’s arguments are based solely on being an employee. If the claimant is ultimately found not to be an employee, the labour court will dismiss the claim but will not refer the case to another court with different jurisdiction (see BAG, judgment of 24 April 1996, 5 AZB 25/95, headnotes 1 to 3).
Contrary to the position of the BGH outlined at the beginning of this article, the Federal Labour Court (Bundesarbeitsgericht, BAG), held that the statutory notice period for managing director service agreements (which are not employment contracts) is governed by section 621 BGB (BAG, decision of 11 June 2020 – 2 AZR 374/19). In the case before the BAG, the parties had not expressly agreed on notice periods in the service agreement but had simply referred to “the statutory notice period”. The BAG interpreted this as a reference to the shorter, and dispositive, notice periods under section 621 BGB. In its decision, the BAG considers the BGH’s view (i. e. that the longer notice periods for employees under section 622 BGB should apply) but rejects it. The BAG specifically noted that the legislator revised section 622 BGB in 1993, after the BGH had first advocated its application to managing director service agreements, and has not incorporated the BGH’s approach into statute. According to the BAG, there is no indication that this omission was an oversight by the legislator.
Against this background, there was considerable anticipation as to whether the BGH would now follow the BAG’s approach or reaffirm its own established case law.
In addition to the possibility of termination of a managing director’s service contract with notice (pursuant to section 622 or 621 BGB), section 626 BGB allows for termination without notice for good cause. The requirements for establishing such “good cause” under section 626 BGB are high: there must be facts that, taking into account all circumstances of the individual case and balancing the interests of both parties, make it unreasonable to expect the terminating party to continue the service relationship until the end of a notice period or until the agreed termination date.
To understand the BGH’s decision discussed here, it is important to note that termination for good cause under section 626 BGB is only possible within two weeks of the employer becoming aware of the relevant facts (section 626(2) BGB). This short deadline is intended to provide the person concerned with timely certainty as to whether a particular incident will be relied upon as grounds for dismissal. According to the BAG (judgment of 28 October 1971 – 2 AZR 32/71), this aims to prevent the employer from using the possibility of immediate termination as a means of leverage during the employment relationship.

II. Decision of the BGH

Against this background, the BGH’s judgment (of 5 November 2024 – II ZR 35/23) was issued. The decision was based on the following key facts:
The defendant was a GmbH & Co. KG, a limited partnership in which the general partner is a limited liability company (GmbH). The claimant was one of the managing directors of the general partner GmbH. The relevant managing director service agreement was entered into between the claimant and the defendant GmbH & Co. KG. According to the agreement, the service relationship could be terminated either with twelve months’ notice or without notice for good cause. The agreement specifically listed the liquidation of the GmbH & Co. KG as an example of good cause. Under the partnership agreement, the (voluntarily established) supervisory board had the authority to remove managing directors. On 8 March 2016, the shareholders’ meeting resolved to dissolve the GmbH & Co. KG. The shareholders’ meeting also decided to terminate the managing director’s service contract. The only dissenting vote was cast by the claimant, who also held a 0.6% interest in the defendant GmbH & Co. KG. The chairman of the supervisory board was authorised to give notice of termination accordingly.
The chairman of the supervisory board gave notice of termination of the managing director’s service agreement. The corresponding letter was received by the managing director on 23 March 2016, more than two weeks after the shareholders’ meeting. The agreement was not terminated with immediate effect, but rather with effect from 30 April 2016. In addition, the supervisory board declared, as a precaution, termination with notice with effect from the next permissible date. After the defendant GmbH & Co. KG received a letter from the claimant’s legal counsel, the chairman of the supervisory board issued a second notice of termination by letter dated 7 June 2016. This time, the termination was declared as termination for cause, with immediate effect, and, as a precaution, once again as an ordinary termination with effect from the next permissible date.
The court of first instance (Regional Court of Mannheim, judgment of 25 August 2021 – 15 O 33/18) held that the managing director’s service agreement had not been terminated. In the appeal, the claimant only requested payment of his salary for May and June 2016. The Higher Regional Court (Oberlandesgericht, OLG) of Karlsruhe (judgment of 13 February 2023 – 1 U 183/21) dismissed the claim. In line with the position of the BAG described in section I above, the OLG held that section 621 BGB, which may be contractually excluded, should apply. The court found that the clause in the service agreement allowing immediate termination for good reason indicated that the parties intented to allow termination without notice. As a result, even the shorter notice periods under section 621 BGB did not apply. The termination dated 22 March 2016 therefore ended the claimant’s service relationship with effect from 30 April 2016. Due to the diverging positions taken by the BAG and the BGH, the OLG allowed an appeal to the BGH.
The BGH, however, found that the terminations had not validly ended the managing director’s service contract, and that the claimant was, in principle, entitled to receive the salary claimed for May and June 2016. According to the BGH, the question of which notice periods apply to service contracts of managing directors was not relevant in this case. The BGH reasoned that the termination, which was received on 23 March 2016 and was on the grounds of the dissolution of the company, was not a termination with notice, but rather a termination for cause under section 626 para. 1 BGB. Even if the termination is based on a contractual ground, the two-week period for giving notice under section 626 para. 2 BGB (see above, section I, final paragraph) applies. According to the BGH, the defendant GmbH & Co. KG should have given notice within two weeks of becoming aware of the grounds for termination, in this case, the resolution to dissolve the company. The fact that the defendant granted the claimant a “run-off period”, meaning the termination was only effective as of 30 April 2016, did not change its nature as a termination for cause, as the termination was still based on an important reason and the “run-off period” was shorter than the 12-month period for a termination with notice stipulated in the managing director’s contract.
As soon as the shareholders’ meeting, the body authorised to terminate the service agreement, had resolved to dissolve the GmbH & Co. KG, it was aware of the grounds for termination. However, the notice of termination was only received by the claimant more than two weeks later and was therefore not served within the required period. This remains the case, even though the claimant was present at the shareholders’ meeting: Although termination can, in principle, become effective through the managing director being present at the meeting and signing the minutes of the resolution (see OLG Nuremberg, judgment of 22 December 2000 – 6 U 1604/00), this requires that the resolution itself already contains a declaration of termination addressed to the managing director concerned. The BGH found no such intention. As a result, the effectiveness of the termination depended on the notice of termination being duly served on the managing director by the chairman of the supervisory board. The termination for cause of 7 June 2016 could not end the managing director’s service contract before 30 June 2016, as by that date there was no longer a valid ground for termination.
The question of which notice periods apply to the termination service agreements with managing directors was therefore not relevant to the BGH’s decision. Nevertheless, in a so-called “obiter dictum” (i.e. a legal opinion expressed by the court in its decision that does not form part of the binding reasoning, but is stated only because the opportunity presented itself), the BGH reaffirmed its previous case law on this issue. Like the BAG, the BGH refers to the revision of the Act on Notice Periods (Kündigungsfristengesetz) in 1993, but reaches a different conclusion: Since the legislator, apparently in full knowledge of the BGH’s case law, neither expressly addressed nor amended the rules concerning notice periods for executive bodies, it must be assumed that this case law was implicitly accepted.

III. Outlook and Practical Implications

The ongoing divergence between the case law of the BGH and the BAG creates legal uncertainty. It is especially important to review whether managing director service agreements contain vague references to statutory provisions. As outlined above, the BAG has interpreted a reference to the “statutory notice period” as a reference to the shorter notice periods under section 621 BGB, whereas, under the BGH’s case law, the same wording could lead to the application of the longer notice periods under section 622 BGB. The parties to a managing director service agreement should therefore ensure that their contracts clearly specify which provisions are intended to apply.
Furthermore, the BGH clarified in its decision that the time limit for giving notice of termination under section 626 para. 2 BGB also applies where termination is based on contractually agreed reasons. This means that, in cases of termination for good cause, prompt action is required.