Dismissal of holding company as director: does the employment contract of the natural person also end?

The dual legal relationship of the DGA: a source of conflict

Many entrepreneurs manage their company through a personal holding company (BV). The structure is familiar: the holding BV is appointed as statutory director of the operating company, while the entrepreneur personally works under an employment or management agreement. Convenient and tax-efficient — until things go wrong.

Because what happens if the general meeting of shareholders (GMS) decides to dismiss the holding BV as director? Does that automatically terminate the employment relationship of the natural person behind that holding company? The Noord-Holland District Court answered that question clearly on 2 August 2024 — in favour of the DGA: no, those legal relationships are separate.

What happened?

An employee — also director and sole shareholder of his personal holding BV — had worked for years as director at a real estate company (HVC). His holding BV was one of three statutory directors of HVC. He himself also had a separate employment contract with HVC as an employee.

At a general meeting in April 2024, the holding BV was dismissed as statutory director by majority vote. HVC then took the position that this dismissal also automatically ended the employment contract of the natural person. HVC only paid salary for the notice period and denied the employee further access to systems and the workplace.

The employee fundamentally disagreed and went to court.

Two legal relationships, two separate regimes

The core of the dispute centred on a classic question in corporate law: to what extent are the corporate law and employment law relationships intertwined?

HVC relied on the so-called 15 April rulings of the Dutch Supreme Court. In these rulings — handed down on 15 April 2005 — the Supreme Court held that dismissal as a statutory director in principle also brings the employment relationship to an end, provided certain requirements are met. The idea is that the corporate law and employment law position of a statutory director are so closely intertwined that dismissal in one relationship carries over to the other.

The cantonal judge held, however, that the 15 April rulings were not applicable in this case — for two independent reasons.

Reason 1: two separate legal relationships. The corporate law dismissal concerned the holding BV as statutory director. The employment contract was concluded with the natural person. These are two legally distinct parties. The 15 April rulings apply to the situation where one and the same person is both statutory director and employee of the same company. That was not the case here: the holding BV was the director, the natural person was the employee. The fact that HVC considered the relationships 'inseparably linked' was insufficient to justify analogous application of the rulings.

Reason 2: contrary contractual arrangements. Even if the 15 April rulings were applicable, the parties had contractually agreed that the employment contract would not automatically end upon such a dismissal. Moreover, during the GMS one of the other directors had explicitly stated that the dismissal of the holding BV concerned only its corporate position and that the employment contract of the natural person would continue. That statement created legitimate expectations on the part of the employee.

Result: the cantonal judge granted the wage claim and ordered reinstatement. HVC was required to continue paying full salary including emoluments.

What are the 15 April rulings?

The 15 April rulings (Supreme Court 15 April 2005, ECLI:NL:HR:2005:AS2030 and ECLI:NL:HR:2005:AS2026) are a cornerstone of Dutch director law. The Supreme Court held that a statutory director typically has a dual legal relationship with the company:

1. a corporate law relationship (appointment and dismissal by the GMS), and
2. an employment or contractual relationship (employment contract or mandate agreement).

In principle, dismissal as statutory director also terminates the employment relationship — unless special circumstances or deviating arrangements provide otherwise.

But the rulings apply in the classic situation: one natural person who is both statutory director and employee of the same company. The question of whether the rulings also apply analogously when a holding BV is the statutory director and the DGA behind that holding has a separate employment contract is less settled in case law — and that is precisely the debate in this case.

Critical note: when are the relationships 'inseparable'?

The outcome of this case is understandable, but the court leaves an interesting question unanswered: when are the corporate law and employment law positions so closely intertwined that dismissal of the holding BV also automatically affects the employment contract of the underlying director?

In legal literature and case law, situations are conceivable where the structure is so transparent that it would be artificial to strictly separate the two relationships. Think of cases where the DGA has explicitly presented themselves as 'inseparable', or where the management agreement and employment contract are so intertwined that termination of one makes the other meaningless.

In this case, however, the distinction was clear: the shareholders had themselves stated during the meeting that the dismissal concerned exclusively the corporate position of the holding BV. That own declaration cut off HVC's argument.

What does this mean in practice?

Are you a DGA working through a holding BV? This ruling provides an important insight: your employment contract with the operating company is legally separate from the appointment of your holding BV as statutory director. A GMS that dismisses your holding BV has not automatically terminated your employment contract.

Are you a shareholder wishing to remove a director-DGA? Make sure you also properly unwind the employment law relationship. Corporate dismissal of the holding BV is step one — but step two is a separate termination of the employment or management agreement, observing applicable notice periods and any contractual arrangements.

Watch what you say at the GMS. Statements by shareholders or fellow directors during the meeting can create legitimate expectations. In this case, the court used a transcript of an audio recording as evidence that the dismissal concerned only the corporate position.

Document arrangements clearly. Does the shareholder want dismissal of the holding BV to automatically terminate the management agreement? Specify that explicitly in the management agreement and in the articles of association. Does the DGA want protection? Then ensure a clear contractual provision separating the two legal relationships.

Conclusion

The Noord-Holland District Court makes clear in this interim judgment that the 15 April rulings do not automatically apply when a holding BV serves as statutory director and the DGA as natural person has a separate employment contract. Two legally distinct parties means two separate legal relationships. Those who ignore that distinction — or fail to make clear contractual arrangements — may face unpleasant surprises.

Ruling

This blog post is based on ECLI:NL:RBNHO:2024:7875, judgment of the Noord-Holland District Court of 2 August 2024.