In corporate practice, it is quite common for a director to carry out management or administration functions in the company. When this occurs, said person is associated with the company via two relations: one of a commercial nature, pursuant to the post of director, and the other of a labour type, as a senior executive. This situation poses the problem of determining which system should be applied to this person, which will have important consequences when establishing, for example, whether the person is entitled to pay guarantees in the event that the company becomes insolvent.
In order to resolve this issue, our case law has developed the so-called «relationship theory», according to which, when an employee of a company who is a senior executive at the same time belongs to the management body of the company, the commercial relationship prevails over the employment relationship, which is absorbed by the former.
This is the premise analysed by the Court of Justice of the European Union (hereinafter, «CJEU» in its judgment of 5th May 2022 (case C-101/21). In this case, the plaintiff in the main litigation was an architect, who in 2010 began to render his services to a company pursuant to an employment contract. Subsequently, in 2017 he was appointed president of the board of directors of the company and signed a modification of the employment contract which stipulated that he would come to undertake management functions in the company.
When in 2018 the company was declared insolvent, the employee claimed the payment of his remuneration, but said request was dismissed on the grounds that in accordance with national law (of the Czech Republic), the plaintiff was not deemed to be an employee. The employee contested the decision, which was subsequently confirmed, and the court understood that in view of the fact that the plaintiff had accumulated the functions of manager and president of the board of directors of the company, no hierarchical nor subordinate relation existed with the company, so that it was not possible to be classified as an employee in accordance with national law.
The plaintiff once again contested the decision, and the court, which went into the detail of the appeal, referred the question to the CJEU for a preliminary ruling asking whether articles 2.2. and 12.a) and c) of Directive 2008/94/EC (hereinafter, the «Directive») should be interpreted as opposing national case law in accordance with which a person exercising, pursuant to an employment contract, on a cumulative basis, the functions of manager and member of the management body of a company, cannot be considered as an employee and, therefore, cannot benefit from the guarantees established in the Directive.
Although the CJEU recognises that the Directive does not define what must be understood as an «employee», it understands that the margin of discretion to define this concept is not unlimited. In any case, the first paragraph of article 2.2., of the Directive must be interpreted in the light of the corporate purpose thereof, which consists of guaranteeing all employees a minimum degree of protection in the event of the insolvency of their employer by means of the payment of unpaid claims. Consequently, the Member States cannot interpret the concept of «employee» in such a way as to compromise the social purpose of the Directive.
According to the CJEU, depriving persons from the protection guaranteed by the Directive in the event of insolvency of the entrepreneur, who are recognised in national law, generally, to be employees and who hold salary claims against the entrepreneur deriving from employment relations, would be contrary to the corporate purpose of the Directive. Consequently, the fact that a person exercises the function of the manager of a company and is also a member of the management body thereof does not allow, per se, the presumption or the exclusion of the existence of an employment relationship or the qualification of such person as a salaried employee.
In accordance with the case law of the Czech Republic, a director acting as manager cannot obtain payment of unpaid salary claims from the salary fund in so far as he is capable of being responsible for the generation of the insolvency. However, for the CJEU, this presumption may be destroyed, taking into account the specific particulars of each individual case and providing evidence to undermine it.
Joan Lluís Rubio
Vilá Abogados
For more information, please contact:
29th July 2022
More about the relationship theory:
PERFORMING MANAGEMENT AND WORK TASKS IN THE SAME COMPANY. THE RELATIONSHIP THEORY
