Board member under an employment contract

Appointment of a board member may, but does not have to entail employing them under an employment contract. The functions within the two relationships are independent. Still, in practice, board members are employed under an employment contract for the purpose of connecting them to the company, ensuring stable remuneration and guaranteeing extra benefits, among others.

A board member under an employment contract acquires all the rights arising from the provisions of the Labour Code.

Pursuant to the provisions of the Code of Commercial Companies, board members are hired under the contracts to perform work for the company by the supervisory board or an attorney-if-fact appointed for this purpose by a Shareholders’ Meeting resolution.

In practice there are 3 types of contracts of employment: a fixed term employment contract, an employment contract for an indefinite period, an employment contract for a specific task.

Taking into consideration the board member relationship and employment relationship, the most advantageous variant, from the point of view of the employer, a limited company, is to enter into a contract for a specific task. It is also acceptable to have an employment relationship for the duration of board member appointment. In this case, together with a dismissal of a board member, employment relationship will lapse as well.

Another attractive form of employing a board member in a company seems to be a fixed term employment contract. The contract allows to precisely determine the time limits of the cooperation, is fairly easy to terminate and greatly limits court interference in such a relationship. Court will be in this case limited within the scope of its jurisdiction to examine the legality of the termination of the employment contract, it will not however be entitled to examine the validity of its termination – as is in the case of contract for an indefinite period.

Moreover, a fixed term employment contract (over 6 months) may be terminated with only a 2-week notice period. This will be possible in case the contract terms include appropriate provision about the possibility of termination.

Employee claim for unlawful dismissal will be limited to compensation, and will not, as is in the case of an employment contract for an indefinite period, being reinstated (exception: pregnant employee on a maternity leave). Apart from that, an employer intending to terminate a fixed term employment contract will not need to consult their plans with the trade unions, and such obligation exists in the case of employment contracts for an indefinite period.

The least favourable form of employment relationship with a board member is an employment contract for an indefinite period. First of all, an employee – board member, will in this case be subject to the statutory notice periods, which are independent of corporate relationship. Therefore, there may be a situation when a company will be obliged to pay an employee remuneration for 3 more months after the termination of the corporate relationship, as this is how long the notice period will last.

Termination of such a contract will require proper justification, and lack of it will result in invalidity of the termination or even in reinstating the board member to work. What is more, in case of contracts for indefinite period there is an obligation to carry out consultations with trade unions. There may also be a situation when termination of employment relationship will be impossible due to pre-retirement protection.

Finally, it is worth to note the fact that concluding an employment contract with a board member is not the only form of employing them. The provisions of the Code of Commercial Companies state that board members may provide work for the company not only based on employment relationship, but also some other legal relationship. The most common foundation for employing board members on the basis of civil agreements are management contracts and mandate contracts.