This week, we will be discussing a ruling on the dismissal of a school board member working for a foundation. The 'h'-ground (i.e. the 'residual ground') was used. Is the dissolution of the employment contract upheld on appeal?
The foundation runs a small-scale VMBO-T school. The Inspectorate of Education has repeatedly found shortcomings at the school. Director X was director under the articles of association. The board was formed by X as executive director and a Management Board consisting of five people. At the end of October 2020, the Inspectorate of Education produced a draft report, in which an 'investigation into administrative action' was announced if no improvements were made. The Management Board subsequently decided that X was not the right man in the right place to carry out the Inspectorate's (third) remedial task. The Management Board therefore submitted a request for termination to the subdistrict court. The subdistrict court dissolved the employment contract as of 1 May 2021 on the so-called 'h-ground' or the 'residual ground', while awarding a transitional allowance. The fair compensation requested by the employee was rejected.
As the director did not agree with the dismissal, he lodged an appeal against the judgment of the subdistrict court. He also claimed fair compensation of € 265,000 gross. The key question in the appeal was whether the employment contract had indeed been correctly dissolved.
According to the Court of Appeal, there was no question of a so-called 'empty shell', which occurs when a legal person decides to dismiss its managing director. X was indeed a director, but the employment contract could still be reinstated (which is no longer possible for directors of foundations, given the current law as of 1 July 2021). Therefore, the Court of Appeal did get around to judging the substance of the case.
However, this does not help the director at all, since the Court of Appeal has ruled that there is the h-ground for dismissal is present. After all, the essence is that the Management Board came to the conclusion that X was not the right man in the right place at the relevant time. The Court of Appeal is of the opinion that the Management Board had a very good reason for this. Furthermore, the Court of Appeal ruled that in this case it was not just a case of a 'bald' statement that there was a lack of trust in a director. There was a very concrete reason. That reason is simply that there was a considerable risk that the Inspectorate would start to implement the investigation. The Management Board was entitled to put the interests of the school ahead of the interests of X. This is the main reason, which has proven to be valid. The other reasons stated in the letter of dismissal therefore do not need to be discussed. The fact that the foundation has alternatively requested dissolution on the g-ground (disrupted employment relationship) does not therefore need to be discussed. According to the Court of Appeal, the subdistrict court was right to dissolve the employment contract on the h-ground.
You can read the judgment of the court of appeal here.
Please note: this case was before the Management and Supervision of Legal Entities Act (in Dutch: Wet Bestuur en Toezicht Rechtspersonen) entered into force. Under current law, as of 1 July 2021, the protection against dismissal of a foundation board member has been curtailed: the dismissal under company law will also result in the end of the employment relationship. The employment contract can no longer be reinstated. Hence, the legal position of the foundation's board members is now similar to that of board members of other legal entities (such as private limited companies under Dutch law). Please take this into account if you are a foundation director. The employment and corporate law team of SPEE advocaten & mediation will be happy to assist you in similar cases.