New regulation on terminating an employment contract with the manager of a Lithuanian company

ECOVIS Miškinis, Kvainauskas ir partneriai advokatų kontora

The Lithuanian parliament has recently amended the Law on Companies. Together with other provisions, there was a modification to the regulation of making and terminating an employment contract with the manager of a company.
According to the provisions of the Law on Companies, an employment contract shall be concluded with the manager of the company. The contract with the manager shall be signed on behalf of the company by the chairman of the board or by another member authorized by the board (if the board is not formed, then by the chairman of the Supervisory Board or another member authorized by the Supervisory Board or, if the Supervisory Board is not formed either, then by a person authorized by the general meeting of shareholders). There can also be concluded a contract on full material liability with the manager.

Provisions of Lithuanian laws describe the manager as a person to whom higher standards of responsibility and activity in the company are applied; therefore relations of confidence tie the company and the manager.
The Supreme Court of the Republic of Lithuania forms the legal practice in a way that the position of the manager shall be treated as unique and, in essence, it matches not the employment legal relations, but civil legal relations. In addition, according to the Civil Code, responsibility of the manager is unlimited.

The Labor Code grants the right to the employee to terminate the employment contract by giving his employer written notice at least 14 days in advance. But the employment contract of the manager is governed not only by the Labor Code, but also by Law on Companies, therefore it is not sufficient to give written notice at least 14 days in advance. The body of the company (the one which has elected the manager – the Board, if the Board is not formed, then the Supervisory Board, or, if the Supervisory Board is not formed either, the general meeting of shareholders) must make a decision to remove the manager from office.

So the new amendment of the Law on Companies made the resignation of the manager clearer. The manager has the right to resign by giving to the body of the company (the one which has elected him) a written notice. The body of the company must make a decision to remove the manager from the office within 15 days from the receipt of the written notice. If the body of the company fails to make such a decision on time, then the employment contract with the manager ends:

1) on the sixteenth day after the receipt of the written notice to resign (if the manager was elected by the Board or the Supervisory Board);

2) on the next day after the general meeting of shareholders, or if it was not held – on the next day after the repeat general meeting of shareholders (if the manager was elected by the general meeting of shareholders).

The body of the company, which has made a decision to remove the manager from the office, must inform the Register of Legal Entities about such decision. If it fails to make a decision – then the resigned manager himself shall inform the Register of Legal Entities about his resignation.

After this amendment of the Law on Companies – the manager of a company received the right to resign from office more easily and there was canceled the possibility of the bodies of the company to delay or to reject the resignation of the manager of the company from his office.