By Irina Anyukhina, Firm:  Alrud

The Russian Supreme Court has given guidance on the level of ‘golden parachute’ that is permissible on termination of an executive’s employment.

The Supreme Court has confirmed that the size of ‘golden parachute’ (severance payment) for the head of an organisation should correspond to the remuneration system of the company and cannot be arbitrarily large.

In this case (Definition of Judicial Chamber on Civil Cases of the Supreme Court of the Russian Federation of 08.04.2019 No. 81-KG18-27), the parties had agreed that, in the event of early dismissal by decision of the shareholders, a company’s General Director would receive a salary for the period remaining until the expiry of the term of his employment. Despite the fact that the employment relationship with the Director was terminated nine months before his term expired, the company only paid him the standard severance benefit, equal to three times average monthly earnings.

The General Director filed a claim with the court. The company argued that the shareholders did not consent to the increased compensation, and, when signing the employment contract, the Chairman of the general meeting had abused his or her authority.

The Supreme Court upheld the company’s claim, noting that the increased compensation was not set out in the company Charter, in local regulations, or in the resolution of the General Meeting on the appointment of the General Director.