In the current economic climate, many companies are engaged in cost cutting exercises. Most employers have at least some familiarity with the termination provisions in the Labor Law applicable to employee termination. But what about board members?
Sometimes cut backs or terminations are required in this context as well. Currently there is some public discussion among legal practitioners and theoreticians as to what are the legal parameters for dismissal of board members, and in particular, what the situation is with a board member who happens to be pregnant at the time of the intended dismissal.
Under section 109 of the Labor Law, there is a bar against termination of an employee who is pregnant or who has given birth within the past year or, with some exceptions, who is breast feeding. The bar applies to cases where the employee is terminated for reasons not linked to fault or liquidation of the company.
But what is the effect of the aforementioned restrictions contained within the Labor Law upon a board member who fits into the criteria set out in section 109 of the Labor Law? In other words, can a board member who is pregnant or a new mother be let go?
This very question happens to be something that lately has become a bone of contention within the legal community, at least at theoretical level.
By one view, section 109 of the Labor Law does not apply to board members. By another view, pregnant board members or board members who are new mothers are subject to special protection and board members who have entered into employment agreements qualify for such protection.
Who is right? Under the Commercial law, a board member is appointed to and terminated from the position pursuant to a resolution of the shareholders' meeting or, if applicable, under a resolution of the Supervisory Council.
Part 3 of section 44 of the Labor Law provides that an appointee to the management body of a company is to enter into an employment agreement, unless the employment is based on some other agreement.
The Supreme Court Senate has opined on this issue and stated that employment relations with board members of a company may be terminated in accordance with the Commercial Law and the procedure set out in the company statutes. The Supreme Court has based its view on the nature of the relationship between board member and company being one of a trust relationship. In addition, the Senate of the Supreme Court has set out that employment agreements with board members do not trump Commercial Law provisions concerning the termination of a contract.
In conclusion, the Senate of the Supreme Court has not changed its view on this question yet. Nevertheless, some risk of movement in a more 'protection oriented' direction cannot be ruled out in light of the lively debate in the profession on this question. Employers are well advised to keep in mind that the question is not entirely settled and to seek legal council before terminating an applicable board member so as to minimize risk against the company.
Annija Melko, Associate, Kronbergs & Cukste. Kronbergs & Cukste is a co-founder of Baltic Legal Solutions, an integrated one stop shop to your legal needs in the Baltic States. Baltic Legal Solutions is represented by Jurevicius, Balciunas & Bartkus in Lithuania and Glikman Partnerid in Estonia.