Constitutional Court on concurrence of executive service agreement and employment contract
The Constitutional Court confirmed that a management contract should be treated as an amendment to an executive service agreement subject to approval by the general meeting. If not approved, a usual remuneration shall be payable for the performance of such work. However, if a member of the statutory body has breached the duty of due care, no remuneration is payable to them.
In the case decided by the Constitutional Court, there was a genuine concurrence of functions: one person held the position of the chairman of the board of directors on the basis of an executive service agreement, and at the same time had a management contract with the company, i.e., an employment contract for the position of CEO.
The Constitutional Court has already ruled in its earlier rulings (No. I. ÚS 190/15 and No. III. ÚS 669/17) that an employment contract is to be viewed as an amendment to an executive service agreement, which subordinates certain provisions of the agreement to the Labour Code.
Since an executive service agreement must be approved by the company’s supreme body, the Constitutional Court concluded that even if the provisions of the agreement were subject to the Labour Code, the executive service agreement must be approved by the general meeting. In the present case, this did not happen, and the Constitutional Court therefore ruled that the chairman of the board of directors was not entitled to the remuneration agreed in the management contract but only to a remuneration in a usual amount.
The Constitutional Court emphasised that the statutory bodies of a company are obliged to exercise their office with due care, i.e., with the necessary loyalty, knowledge and diligence. In the event of a breach of due care, they are obliged to compensate the damage they have caused to the company, or return the unjust enrichment.
According to the court's decision, the chairman of the board of directors had breached the duty of due care, among other things, by having a variable remuneration component paid to him without having been entitled to it. The court therefore held that as a result of that breach, the chairman of the board of directors was not even entitled to remuneration in a usual amount.