Director personally liable for improper dismissal

An owner seemed to want to get rid of his sick employee. Instead of following the rules of the law and thus requesting dissolution of the employment contract from the court or permission to terminate the employment contract from the UWV, or parting with the employee through consent, the employer came up with something else, but it cost him dearly.

Employee ill

If an employee is ill, the following should be done:

• the instructions of the company doctor should be followed,
• a Plan of Action should be drawn up; and
• both employer and employee should make efforts and focus on reintegration.

It is not simply possible to have the employment contract dissolved by the court.

Employee sick for two years

If an employee has been ill for two years, the UWV can be asked for permission to terminate the employment contract. Then the transition compensation should be paid by employer to employee. Employer can request compensation for this from the UWV.

Employer apparently does not feel like going this route

ECLI:NL:RBOVE:2023:3438

A recent court ruling from the Court in Overijssel shows that an employer apparently had no desire to take this route. Instead, the employer had terminated the employment contract with the sick employee.

This is not allowed.

Employer subsequently liquidates private limited company

Probably to avoid paying an amount of compensation to the employee, the employer then liquidated the company that employee was working for. That was a limited liability company (B.V.), so by that liquidation, there was no longer an entity to sue for the course of business.

Formation of new company

However, the former employer then started a new company. A new limited liability company (B.V.) with the same activities. Without including that sick employee.

Employee started proceedings

The sick employee (rightly) disagreed. He therefore started proceedings against both the new company and the (indirect) director of that new company in person. Two points were raised in these proceedings:

1. There is a transfer of undertaking, so I, the sick employee, was transferred to the new company by operation of law and am employed there, and
   
   
2. By your manner of acting (indirectly) as a director of the new company, you are acting unlawfully, there is directors' liability so you are personally liable for compensation for damages.

Employee had also since made the choice not to work for this employer anymore. So employee no longer claimed his workplace and his salary, but compensation for irregular dismissal.

Transfer of undertaking?

So the court had to decide whether there was indeed a transfer of undertaking.

The subdistrict court had to assess this on the basis of Section 7:663 of the Dutch Civil Code.

Is there an economic entity that has retained its identity and with which the same or similar economic activity can be continued? Identity is preserved if the operation is in fact continued or resumed after a short period of delay. When assessing whether there is a transfer, all characteristic facts and circumstances must also be considered, such as:

• the nature of the undertaking concerned,
  
  
• whether or not the tangible assets such as buildings and movable property have been transferred,
  
  
• the value of the intangible assets at the time of the transfer,
  
  
• whether or not the new entrepreneur takes over substantially all the staff,
  
  
• whether or not the customer base is transferred,
  
  
• the degree of similarity between the activities carried out before and after the transfer, and
  
  
• the duration of any interruption in those activities.

These aspects must be seen in their interrelationship and the weight given to the relevant aspects separately depends on the nature of the business, the court said.

In this case, self-employed persons who had previously performed work at the liquidated company appeared to be working at the new company, the work remained exactly the same, namely masonry work, and the new company's website stated that the new company was a continuation of the liquidated one.

The court therefore held that there was a transfer of undertaking and therefore that the new company is liable to perform the obligations of the liquidated company.

The ploy to liquidate the company where the sick employee was working in order to get rid of employee and the associated obligations had thus failed. The new company could be sued for this.

Director's liability?

Employee, however, had also argued that this was a case of ‘directors' liability’ here. That the employer should be held personally liable by this course of action.
If a limited liability company (B.V. or N.V.) fails in its obligations under a contract or acts unlawfully, the basic principle is that only the limited liability company (B.V. or N.V.) is liable for the resulting damage.

Special circumstances

Under special circumstances, there may also be room, in tort, for liability of a director in person of a limited liability company (B.V.).

For example, if the director has brought about or allowed the limited liability company (B.V.) to breach its legal or contractual obligations.

Serious personal fault

In that case, the director concerned can be held personally liable for the sick employee's damages if his actions or omissions as director vis-à-vis that sick employee are, in the given circumstances, so careless that he can be personally blamed for them.

Such a serious reproach will in any case be possible, the court ruled, if it is established that the director knew or reasonably should have understood that the B.V.'s conduct, which he brought about or allowed, would result in the B.V. not fulfilling its obligations and the employee would thus no longer be able to obtain compensation from a company that no longer exists.

Reference is then made to the Supreme Court ruling

HOGE RAAD 8 DECEMBER 2006, ECLI:NL:PHR:2006:AZ0758, NJ 2006, 659 (ONTVANGER/ROELOFSEN))

"If the director is a legal person, the relevant liability under Article 2:11 of the Civil Code also rests on each person who is a director thereof at the time when the legal person's liability arises."

The court ruled that there was such conduct in this situation and therefore that the (indirect) director was personally liable.

The judge ruled that a good director should be expected to know the rules on how to deal with a sick employee or to have taken advice on this matter. The director

"should therefore have at least reasonably understood that this manner in which he terminated the employment contract with the employee was unacceptable under employment law, that it would lead to a claim by the employee against the liquidated company and that this company, because of its dissolution, would have no recourse for that claim. By his conduct, therefore, director indeed acted so carelessly towards employee that he can be personally blamed for it."

And so the director must "also" pay damages out of his own pocket, from his private assets.

Joint and several liability

The court ruled that this way of acting is unacceptable. And since director and employer owed the same amounts to employee, they would be ordered to pay those amounts jointly and severally under Section 6:6(1) of the Dutch Civil Code.

This cost the employer and the director dearly. In the end, the employer and the director were jointly and severally ordered to pay the employee fixed damages, a transitional compensation and fair compensation in the amount of EUR 21,000, plus legal costs.

So do not contrive your own ruse, but always seek legal advice!

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