In this article, we explain who qualifies as a manager in terms of employment law and what different rules apply when hiring a managerial employee.
According to Act I of 2012 on the Labour Code (Labour Code Act I of 2012), the managing director and the deputy managing director of a company are considered to be managerial employees even without a separate agreement. For all other employees (e.g. the company director, if he/she is not a general deputy, or heads of specific areas), the rules on managerial employees may be applied on the basis of an explicit agreement in the employment contract, if the following two conditions are met: a) the employee holds a position of major importance or high trust for the employer’s operations and b) the basic salary is seven times the statutory minimum wage.
Conflict of interest
Employees in managerial positions are subject to stricter conflict of interest rules than other employees of the company (e.g. they cannot hold shares in companies engaged in similar activities and there are relatively strict restrictions on relatives).
Liability
The manager is subject to stricter liability rules vis-à-vis the company.
The stricter liability means that the director is liable for damages caused by slight negligence and without limitation, and the exemption from liability for managing directors is also stricter (by contrast, an ordinary employee is liable for the full amount of damages only for damages caused by gross negligence and intentional wrongdoing, whereas liability for damages caused by slight negligence is limited to four months’ absence allowance and is based on fault – fault.)
In the case of managers, liability is also normally limited to the company. This means that, with a few exceptions (typically intentional torts or bad faith hedging), third parties cannot sue the director directly and public authorities cannot hold them directly liable for damages caused in their capacity as representatives of the company.
For the sake of more stringent liability, it is worth considering taking out D&O (directors & officers liability insurance).
Other different employment law rules for managerial employees
The different employment law rules for executives therefore apply in any case for managing directors, whereas they apply to company directors or other employees only if the parties enter into an employment contract or amendment designating the employee as an executive.
One of the significant differences is that the working hours of managers are considered to be flexible even in the absence of a specific agreement, so they do not have to keep time records and thus do not receive compensation for overtime.
The employment contract of managers may derogate from any provision of the Labour Code, subject to a few exceptions laid down in the legislation (for example, the employer may not terminate the employment relationship during the manager’s maternity leave or pregnancy).
The employer is not obliged to provide justification for the termination of the employment of managers, i.e. with ‘normal’ notice.
The protection against dismissal applies only to a limited extent to managers (e.g. in the case of managers, the period of notice also starts during incapacity for work due to illness). In other respects, the notice period is subject to the general rules, but the parties may of course agree to a longer notice period than the general rules. In the case of managerial employees, unlike non-managerial employees, it is also possible to agree that the notice period will only be longer in the event of termination by the employee (it is of course worth considering whether the employee would accept such a unilateral restriction).