Historically, the legal relationship between a statutory director and the company to which he/she is appointed under the company's articles of association has been both one of employment and a corporate arrangement. As an employee of the company, the statutory director has enjoyed employment benefits such as sick pay, holiday entitlement and protection against unfair dismissal.
In 2005, the Dutch Supreme Court ruled that the dismissal of a director by shareholders' resolution constitutes an automatic termination of both the corporate relationship and employment relationship, meaning that no separate procedure is required. However, notwithstanding this, statutory directors have commonly received inflated severance payments which include a sum by way of settlement of potential unfair dismissal claims.
As from 1 January 2013, a statutory director of a listed company (in Dutch: "Naamloze Vennootschap") will no longer be permitted to enter into an employment contract with the company to which he or she is appointed. The director and the listed company are free to agree terms for the provision of services, but the director will not have the status of employee or the ability to claim unfair dismissal and thus, inflated severance pay. Upon termination of the directorship, severance pay will be determined in accordance with the Dutch Corporate Governance Code and will be capped at one year's salary. It remains to be seen whether this new legislation will have the desired effect of reducing severance pay to listed company directors as it will still be possible to agree contractual compensation upon termination.
Pre-existing employment contracts of statutory directors entered into before 1 July 2012 will not be affected by the new legislation. The changes apply to listed companies only.
