Ground-breaking judgment of the Supreme Court on the concurrence of agreements under the Corporations Act and the Labour Code

Ground-breaking judgment of the Supreme Court: Subordinating a “management contract” to the Labour Code and concurrence of an agreement on the position of a director under the Corporations Act and a “management contract” under the Labour Code now both possible

Judgment of the grand senate of the Supreme Court under ref. No. 31 Cdo 4831/2017 was published on 11 April 2018 and is changing the existing case law. An insolvency administrator demanded reimbursement of the wages paid to the director, arguing that the management contract is null and void because of the so-far prohibited “concurrence”.

The new decision responds to a 2016 decision of the Constitutional Court ref. No. I. ÚS 190/2015, which criticised the Supreme Court’s previous decisions. In it, the Supreme Court comments on whether a member of a statutory body (in this case the member of the board of directors) may validly conclude a “management” (i.e. labour law) contract to act as the CEO, which overlaps with the execution of powers of the member of the board of directors.

Up to now, the Supreme Court held that “management contracts” under the Labour Code concluded for activities that fall under the authority of the director’s position are null and void.

The Supreme Court explicitly allowed the possibility of concurrently concluding two contracts, i.e. the agreement on the director’s position fully under the Corporations Act and the “management contract” partly under the Labour Code and partly under the Corporations Act.  “In such a case, it is necessary to consider the management contract as the appendix (sui generis) to the agreement on the director’s position (…) if its object is the execution of part of the activities that belong to the statutory body. A management contract is not null and void solely because it is subordinated under the Labour Code; nevertheless, the same requirements (in terms of form, content and necessity of its approval) must be fulfilled as for the agreement on the director’s position.