The previous legal situation
On Friday 11 June 2021, the German parliament voted through the #stayonboard bill initiative, which had already been approved by the German government coalition parties.
The new regulation is part of what is known as ‘FüPoG II’ (legislation introducing a slightly stricter female quota for the board members of larger German stock corporations).
Briefly summarised, the draft law provides for the following innovations:
- The law will grant female and male executive board members of stock corporations (Aktiengesellschaft, AG), European Company (SE) directors and limited liability company (GmbH) managing directors an entitlement to family-related time off, usually for up to three months. Only sole board members or sole directors/managing directors are not covered by the regulation. As opposed to many other countries, German corporations have a two-tier board structure, with full time executive board members doing the daily management, and supervisory board members who usually convene for a number of supervisory board meetings per year, and who are in charge of any contractual matters with regard to the executive board members – such as granting a time off period.
- In legal terms, this time out is structured as a revocation of the appointment in office, combined with a guarantee of reappointment after the end of the time out.
- The scenarios for family leave are maternity leave, parental leave, the need to care for a sick family member and illness of the board member. The legislator has used the German labour law terms ‘maternity leave’, ‘parental leave’ and ‘care’ in order to describe the circumstances and to refer to the relevant labour law regulations. By way of explanation, executive board members and (managing) directors are representative of the legal entity and not considered to be employees as defined by German labour law.
- Now, pregnant AG board members will have a binding right to have their appointment revoked for the duration of six weeks before and eight weeks after the birth, without the supervisory board being able to object.
- For parental leave, care of dependents or illness, the rights of the supervisory board are more significant and structured. In principle, time off for up to three months may be requested. The supervisory board can however object to the request if there is an important reason, such as the request coming at an untimely moment. The board should give an explanation for its refusal. If the executive board member requests a longer time off for up to 12 months, the decision is left to the full discretion of the supervisory board and does not have to be explained in writing.
- The originally agreed term of office of the board member is not extended by the break; the originally agreed end date thus remains in place.
- In contrast to informal time off periods for of board members which have already been agreed in the past, the new regulation will ensure that the board member will be released from all duties and liability for any actions and omissions during their leave.
- Whether the remuneration of the board member continues during the time off period will depend on the agreements in place between the parties. Of course, the currently applicable employment contracts for executive board members do not yet contain any statement on temporary revocation under the new regulation. In most cases, interpretation should show that, subject to other agreements of the parties, the claim to remuneration from the employment relationship is suspended as long as the appointment is revoked.
- In connection with this new opportunity for time off, it is advisable to regulate the questions that will arise in a contractual agreement, such as the question of vesting periods of stock options, a possible pro rata reduction of bonus claims, the continued use of a company car, claims to pension contributions, the continued access to company information and emails as well as questions of availability of the board member during the time off period, etc.
- The bill does not include a time limit regime for the latest possible notice to ask for time out. For pregnancy and parental leave, an announcement and a request by the board member are obviously possible at an earlier time than for nursing of sick family members, as well as for a board member’s own illness. Regarding the reaction of the supervisory board, the explanatory memorandum to the law requests that answers be given within a reasonably short period of time.
The new regulation will come into force at the same time as the FüPoG II, on the day after its official publication. Unlike the FüPoG II, it does not contain any transitional provisions which mean that based on our current knowledge, it should apply with immediate effect.
It is to be hoped that the new regulation will lead to more openness to a variety of personal situations among executive board members of stock corporations, limited liability companies and European Companies and that the improved compatibility of work and family will influence policy and actual practice for the levels below the executive board.
It must be taken into account that the new regulation will lead to an increased bureaucratic burden for companies. It is also conceivable that in individual cases there could be abuse and tactical use of the statutory right, as is occasionally observed in practice with parental leave claims by employees. In contrast to the situation under labour law, however, the supervisory board’s position is strong, apart from cases of maternity leave, meaning abuse seems only to be possible to a very limited extent. In a best-case scenario, the new regulation will increase the number of suitable candidates for executive office.