Concurrence of offices, yet again
The concurrence of offices is an evergreen in corporate law. The present back-and-forth exchange of opinions between the Supreme Court and the Constitutional Court is certainly interesting. But will they finally arrive at a straightforward result?
The (prohibited) concurrence of offices is a skeleton in the cupboard of many a managing director. According to previous Supreme Court case law, an employment contract of a member of a statutory body was null and void, except where it had been concluded for an activity completely unrelated to business management. In April of this year, however, the Grand Chamber of Judges of the Supreme Court turned around and admitted, following the Constitutional Court’s judgement, that even a contract for activities that fall under the responsibility of a statutory body may be (within certain limits and under certain conditions) governed by the Labour Code.
Now the Constitutional Court has yet again dealt (judgement III. ÚS 669/17) with the validity of an employment contract concluded between a company and its statutory body, who at the same time served as its managing director. The Constitutional Court pointed out that the Supreme Court failed to properly justify why it was not possible to choose the Labour Code to govern the contract. Note, however, that the Supreme Court’s decision challenged by the constitutional complaint had been issued before the mentioned Grand Chamber’s judgment. The Constitutional Court also disagreed with the (quite surprising) Supreme Court’s opinion that it was unacceptable for a management agreement to be signed by the same person on behalf of both parties, i.e. by the statutory body signing on behalf of the company, and as an employee. Here the Constitutional Court pointed out that such approach would render it impossible to conclude employment contracts even where the job descriptions did not at all concern business management (the responsibility of the statutory body); yet so far, such employment contracts have generally been accepted by the Supreme Court.
It is expected that the Supreme Court will revise its original decision along these lines: hopefully, it will thus be made clear that it is acceptable for an agreement on exercising an office to be governed by the Labour Code. Yet, it is still necessary to bear in mind the pitfalls of such a solution: importantly, the mandatory provisions of the Corporations Act regulating the relationship between the statutory body member and the corporation must always be observed when these concern, e.g., the limitation of liability or the necessity for remuneration to be approved by the corporation. In our opinion, the above mentioned case law means a certain mitigation of risks associated with historical employment contracts of statutory body members rather than guidance on how to proceed in the future. There are certainly smarter approaches to addressing the issue of managers’ positions in a company than subjecting their contracts to the Labour Code.