The degree of tension, inherent to labor disputes, rises when terminating the employment contract with the chief executing officer, commercial or financial director, as well as another employee making management decisions. Let’s consider the most popular grounds for the executive officer termination of employment according to the norms of the Labor Code of Ukraine.
The degree of tension, inherent to labor disputes, rises when terminating the employment contract with the chief executing officer, commercial or financial director, as well as another employee making management decisions.
Let’s consider the most popular grounds for the executive officer termination of employment according to the norms of the Labor Code of Ukraine.
Termination of powers
Paragraph 5 of Part 1 of Article 41 of the Labor Code of Ukraine provides the investor with the right to dissolve an employment contract with an executive officer by terminating his powers.
The specified ground for termination of the employment contract was introduced by the Labor Code of Ukraine in 2014 to improve the investment climate in the country. A similar norm is provided for by civil law, in particular, part 3 of Article 99 of the Civil Code of Ukraine, which allows the business owner to terminate the powers of a company’s executive body member at any time.
The Supreme Court repeatedly drew attention to the fact that upon dismissal of an employee on the basis of paragraph 5 of part 1 of Article 41 of the Labor Code of Ukraine, the employer is not obliged to give a prior notification to the employee, find out his guilt, expediency and reasons for dismissal, as well as take into account the results of previous work (judgments by the Supreme Court dated February 7, 2018 in case No. 711/5711/16-ц, dated July 11, 2018 in case No. 724/140/16-ц).
The labor legislation does not provide for the list of officials with whom the employment contract can be terminated on the basis of paragraph 5 of part 1 of article 41 of the Labor Code of Ukraine. At the same time, the main criterion for classifying a person as an official is having organizational or administrative functions (judgment by the Supreme Court dated September 5, 2018 in case No. 537/3876/16-ц).
The termination of the official’s powers will cost the employer 6 monthly wages – this is the kind of golden handshake in the form of severance payment provided for in Article 44 of the Labor Code of Ukraine.
Specified by the contract
Part 4 of Article 65 of the Commercial Code of Ukraine allows to conclude the labor contract with the company executive.
The labor contract as a special form of an employment agreement may contain additional grounds for terminating an employment not established by applicable law.
When dismissing an employee on the basis of paragraph 8 of part 1 of Article 36 of the Labor Code of Ukraine, it is necessary to justify the existence of circumstances stipulated by the contract; otherwise the court will conclude that the dismissal is unlawful. For example, by a judgment dated January 23, 2018, in case No. 203/6039/15-ц, the Supreme Court upheld the court decision on reinstating the plaintiff in office, since the employer had not proved the fact of the company executive’s failure to comply with the annual financial plan.
At the same time, additional grounds for dismissal should not duplicate the norms of the Labor Code of Ukraine, for example, a one-time gross violation of labor obligations (paragraph 1 of part 1 of Article 41 of the Labor Code of Ukraine). In such cases, the courts consider that the dismissal took place on the basis of the legal norms, and not of the contract, and accordingly, it must be carried out in compliance with the guarantees provided by the labor legislation (judgment by the Supreme Court dated May 16, 2018 in case No. 206/52351/16-ц).
It should be noted that the dismissal on the basis of paragraph 8 of part 1 of Article 36 of the Labor Code of Ukraine is not the employer-initiated termination. Accordingly, in this case, the prohibition on dismissal an employee during vacation or temporary incapacity to labor provided for in paragraph 3 of Article 40 of the Labor Code of Ukraine does not apply to the employer.
By agreement of the parties
Ex facto, the universal option for dismissal is the termination of the employment contract by agreement of the parties in accordance with paragraph 1 of part 1 of article 36 of the Labor Code of Ukraine. Thus, dismissal on this ground is not prohibited during a period of vacation or temporary incapacity to labor. There is even the possibility of dismissal on a same day basis.
The dismissal can be initiated both by an employee and an employer. At the same time, it is the mutual free will of the parties that is important.
For example, the mere consent of the general meeting to satisfy the Director General’s request for dismissal does not mean that the employment contract was terminated under paragraph 1 of Part 1 of Article 36 of the Labor Code of Ukraine, unless the parties agreed on this ground for termination of the employment contract. In the latter case, the dismissal is considered to be carried out at the initiative of the employee (Article 38 of the Labor Code of Ukraine). That is, the consent of the owner and executive officer on dismissal by agreement of the parties should be achieved precisely on the basis of paragraph 1 of part 1 of article 36 of the Labor Code of Ukraine (judgment by the Supreme Court dated April 25, 2018 in case No. 640/2336/17).
Despite the fact that the form of the agreement of the parties on the termination of the employment contract is not provided by law, it is recommended to conclude such an agreement in writing. This is primarily due to the features of functional duties and the degree of responsibility of executive officers.
Unfortunately, in practice, there are often situations when dismissal by agreement of the parties leads to negative consequences.
Thus, considering the case brought by the dismissed acting director general by consent of the parties, the Supreme Court in his judgment dated March 27, 2019, in the case No. 310/8796/16-ц, indicated that all amounts must be paid to the employee on the day of his dismissal. In the event of failure to fulfill this obligation, responsibility shall arise under Article 117 of the Labor Code of Ukraine, i.e. payment of average earnings for the entire delay time.
Other grounds for dismissal
Like any employee, an executive officer can be dismissed on such grounds provided for in the Labor Code of Ukraine, as truancy , appearing at work in a state of intoxication, a one-time gross violation of labor obligations, etc. (Articles 40, 41 of the Labor Code of Ukraine).
In addition, in 2018, the Law of Ukraine “On Limited and Additional Liability Companies” (hereinafter referred to as the Law) entered into force, providing additional grounds for dismissal of officials, for example, violation by the Director General of the obligation to convene a meeting of the collegial executive body (Part 7 of Article 39 of the Law); carrying out economic activities in the field of activity of the company without the consent of the general meeting or the supervisory board (part 6 of article 40 of the Law); receiving remuneration on conditions not provided for by the contract; failure to fulfill the obligation to notify the company of the list of its affiliates, of a conflict of interest; disclosure of trade secrets, confidential information (parts 2, 4, 6, 7 of article 42 of the Law).
The law also establishes that the powers of the director/director general can only be terminated by the election of a new director/director general or his acting (part 13 of article 39 of the Law).
Since the Law has been in force not so long ago, as of today, there is no judicial practice of applying these provisions.
At the same time, we recall that in the case of the dismissal of the head officer, it is necessary to notify the tax authorities and the servicing bank of the relevant changes, to make alterations to the Unified State Register, and also cancel, if any, an enhanced public key certificate issued for the director.
The termination of company executive employment is distinguished by the special nature of powers for the respective position, as well as possible grounds for dismissal. Therefore, strict observance of the particularities of the dismissal order can prevent the occurrence of further mutual claims of the parties. We note that the Supreme Court places the burden of proving the lawfulness of the employee’s dismissal on the employer (judgment of the Civil Court of Cassation dated January 23, 2018 in case No. 273/212/16-ц, dated August 8, 2019 in case No. 389/2712/17).
Thus, in order to avoid negative consequences in the form of a labor dispute when dismissing an executive officer, it is necessary to follow the requirements of the Labor Code of Ukraine, special legislation, as well as take into account the terms of the contract and the company’s charter, which may provide for the specifics of dismissing an executive officer and the body authorized to accept such decisions.
The article has been published in ‘Yuridicheskaya Praktika’ periodical (original language – Ukrainian).