Best Practices for Executive Terminations

Terminating a C-level executive or a managing director is one of the most sensitive tasks a board of directors or a supervisory board can face. Under German law, the dual nature of an executive's position—as both a corporate organ and often an employee—creates complex legal friction.

The "Two-Step" Termination Process

In Germany, it is critical to distinguish between the removal from the corporate office (Abberufung) and the termination of the service contract (Kündigung des Dienstvertrags). A mistake in either step can lead to prolonged litigation and significant severance payments.

Strategic Considerations

• Garden Leave: Immediate suspension (Freistellung) is usually necessary to protect trade secrets, but must be handled carefully to avoid breach of contract claims.
• Post-Contractual Non-Compete: Ensure that non-compete clauses are valid and that the mandatory compensation (Karenzentschädigung) is correctly calculated.
• Communication Strategy: Public announcements regarding an executive's departure must be neutral to avoid defamation claims.

Preparation is everything. A comprehensive "Termination Roadmap" should be developed weeks before the actual meeting takes place.