The new Companies and Associations Code (CAC) expressly states that directors cannot be bound by an employment contract with the company in that capacity.
However, this does not mean that a director may never enter into an employment contract with the company at which he or she is a director.
The law only prohibits this when the director is acting ‘in that capacity’, in other words, in the capacity of a director. In addition to the directorship, he or she may still enter into an employment contract if the following conditions are met:
In order for a director to be an employee of the same company at which he or she is a director, his or her duties as an employee must be substantially different and separate from those as a director. For example, a director might also have a position in sales.
An employment contract exists when an employee undertakes to perform work in exchange for pay under the employer’s authority.
The director must therefore receive pay from the company for his/her work as an employee. In addition, it is important for him/her to do this work under the authority of the employer. This is often the hardest condition to meet. For example, if the company only has a single director, this condition cannot be met, as the director cannot oversee and manage the work he or she does as an employee. The number of members of the administrative body as well as the shareholding structure (and the associated voting rights) must be examined in order to determine the extent to which the employer’s authority can be said to be exercised in reality.
If there is no real employer’s authority, the employment contract may be reclassified by the social inspectorate as a self-employment arrangement.
If the position of director is combined with that of employee, it is important to draw up clear agreements. There should be both a director’s contract and an employment contract, clearly showing that the position as an employee is completely separate from that of the mandate as director by means of a clear description of the tasks associated with both positions.
Finally, it is also important to note that if the company wishes to remove someone who is both a director and an employee, two different dismissal procedures must be followed. The correct notice period/compensation must be adhered to for the person in his or her capacity as an employee, and he or she must also be dismissed as a director. The duality of positions therefore implies that if the director is removed from office, this will not automatically entail his or her dismissal as an employee.
