Drafting Employment Contracts for Executives in Germany: Legal and Payroll Considerations

When drafting employment contracts for managing directors (Geschäftsführer) and board members (Vorstandsmitglieder) in Germany, it is critical to ensure that these contracts are tailored to comply with the specific legal requirements governing these roles. Due to the unique legal status of these executives, which differentiates them from regular employees, careful legal review is essential.

Key Legal and Payroll Considerations:

1. Legal Status and Framework:

  • Managing directors and board members are not classified as regular employees under German law, which means that many statutory employee protections do not apply. For instance, the general statutory notice periods under § 622 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) do not automatically apply to these roles. Instead, notice periods are usually determined contractually. Commonly, these periods range from three to six months, often ending with the close of a calendar quarter.

2. Termination and Notice Periods:

  • The termination of managing directors is governed by § 38 of the German Limited Liability Company Act (GmbHG), while board members are subject to the rules in § 84 of the German Stock Corporation Act (Aktiengesetz, AktG). These laws allow for termination by the supervisory board or shareholders, typically in accordance with the notice periods specified in the contract. Ensuring that these notice periods are clear and legally enforceable is crucial for both compliance and operational continuity.

3. Severance Payments:

  • There is no statutory entitlement to severance payments in Germany unless such payments are specified in the employment contract or are part of a negotiated exit package. Severance agreements, if included, must align with the general principles of German law, such as those in §§ 626 and 627 BGB, which govern termination for cause and immediate termination of service contracts, respectively.

4. Non-Compete Clauses:

  • While § 74 of the German Commercial Code (Handelsgesetzbuch, HGB) governs non-compete clauses in commercial agency agreements, it does not directly apply to employment contracts. For employment contracts, non-compete clauses are governed by §§ 110 and 74-75a of the German Commercial Code (HGB) specifically for commercial agents, but similar principles apply to employment contracts under civil law, particularly §§ 74-75d HGB, which can be analogously applied. These clauses require compensation for the period during which the non-compete is enforced and must be clearly defined within the employment contract.

5. Legal and Payroll Integration:

  • The drafting of these contracts should involve legal professionals to ensure all terms are enforceable and compliant with German law. At WW+KN, a Baker Tilly Company, we collaborate closely with Baker Tilly’s legal experts to ensure that all contractual obligations are seamlessly integrated into payroll operations, including severance payments, notice periods, and any post-employment restrictions such as non-compete agreements.

For assistance with drafting and managing executive employment contracts in compliance with German law, please contact us at Info@payrollgermany.de.