The managing director (Geschäftsführer of a GmbH, Vorstand of an AG) occupies a hybrid position in German employment law: a corporate-law office combined with a service contract. The standard employee-protective framework (KSchG, Arbeitsgericht jurisdiction, Kündigungsfristen under § 622 BGB) does not automatically apply. The result: senior executives often discover, too late, that their German “managing-director” role gives them substantially less protection than a regular employee position — combined with significantly higher claim values when properly negotiated.
The two-step structure
A managing-director relationship consists of two legally independent components:
1. The corporate-law office (Organstellung)
Appointment as Geschäftsführer is a corporate-law act — by shareholder resolution for a GmbH (§ 46 No. 5 GmbHG) or by supervisory-board resolution for an AG (§ 84 AktG). Removal from the office (Abberufung) is equally a corporate-law act, generally possible at any time without cause for a GmbH (§ 38(1) GmbHG, except where Articles of Association limit this).
2. The service contract (Dienstvertrag)
The contractual relationship governing remuneration, notice periods, post-termination obligations, and severance. Typically a separate written contract. Independent from the corporate office.
Termination of the service contract is governed by the contract itself, the BGB (§ 626 for extraordinary cause, §§ 620-621 for ordinary termination), and case law. The KSchG does not apply (§ 14(1) KSchG explicitly excludes managing directors).
What protections does (and does not) apply
| Protection | Regular employee | Managing director |
| KSchG dismissal protection | Yes (after 6 months) | No (§ 14(1) KSchG excluded) |
| Notice periods (§ 622 BGB) | Yes | Only where service contract is silent |
| Works-council consultation | Yes (where applicable) | No |
| Mass-dismissal protections | Yes | No |
| Sperrzeit risk on Aufhebung | Yes | Limited (often above ALG cap) |
| Court jurisdiction | Arbeitsgericht | Generally ordinary court (Landgericht) |
| AGG anti-discrimination | Yes | Yes (BAG 2012) |
The Arbeitsgericht has jurisdiction only for the rare exceptions: where the managing-director relationship has clearly ended and the dispute concerns post-termination employment rights, or where the relationship is held to be a sham (no true managerial autonomy).
The valuable elements in a Geschäftsführer termination
Even without KSchG protection, a managing-director termination typically involves substantial value:
Notice-period payment
Standard managing-director contracts include 6-12 month notice periods, often with “garden leave” entitlement (continued salary without active duties). For executives at €200,000-500,000/year, this alone is substantial.
Bonus pro-rata
Annual and multi-year bonus components — often a 30-60% of total compensation. Contractual interpretation of “good leaver” vs “bad leaver” treatment is a major battleground.
Deferred compensation
Long-term incentive plans (LTIPs), phantom stock, equity-based deferred bonus, pension top-ups. Often 6-figure unpaid amounts at termination.
Post-contractual non-compete (Wettbewerbsverbot)
Where the contract includes a post-employment non-compete clause, the employer must pay 50% of last fixed salary for the non-compete period (typically 1-2 years), or formally waive the clause within statutory deadlines.
D&O liability protection
Directors’ and officers’ liability insurance continuation, indemnification provisions, hold-harmless agreements — often more valuable than the cash severance itself.
Reputational provisions
Joint statement on departure, agreed reference, no-disparagement clauses. Critical for re-employment prospects.
The Abberufung-vs.-Kündigung sequence
Typical bad-faith sequence we routinely challenge:
- Shareholders abberufen the Geschäftsführer (one-day act, no procedural rights).
- Employer assumes service contract is automatically terminated.
- Employer stops paying salary.
This is wrong. The service contract continues until properly terminated. We litigate the unpaid salary as a contractual claim — often substantial sums for the gap period.
Internationals: foreign managing directors on German Dienstvertrag
Foreign nationals appointed as Geschäftsführer of German subsidiaries face additional complexity:
- Residence permit: Geschäftsführer roles typically secured via Aufenthaltserlaubnis nach § 21 AufenthG (selbstständige Tätigkeit) or as part of intra-corporate transfer (§ 19c AufenthG). See our residence-permit article.
- Tax residency: Geschäftsführer income is typically taxed in Germany regardless of physical presence (§ 49(1) No. 4(c) EStG).
- Social security: Geschäftsführer who are also shareholders (Gesellschafter-Geschäftsführer) above 50% ownership are exempt from social security; minority shareholders or non-shareholders are typically employed-equivalent for social-security purposes.
The negotiation playbook for an executive termination
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Comprehensive claim catalogue
Notice-period salary, bonus pro-rata, LTIP/deferred-compensation acceleration, non-compete payment, D&O continuation, indemnification, pension contributions, expense reimbursement.
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Cash-equivalent valuation
Total claim value calculated, with valuation methodology for each component. Often 1-3x annual cash compensation.
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Reputational architecture
Joint statement draft, reference language, non-disparagement, agreed leaving date with dignified internal/external communication.
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Negotiated separation agreement
Single document combining all elements with appropriate tax structuring (Fünftelregelung where applicable).
Worked example: a US-national CFO of a Frankfurt fintech
A 52-year-old US CFO of a German fintech subsidiary. 4 years in role. Annual compensation: €280,000 base + €120,000 bonus + €150,000 LTIP vesting over 3 years. Post-contractual non-compete: 18 months / global.
Shareholders abberufen the CFO citing “strategic realignment.” Initial employer offer: 6 months notice payment (€140,000), no bonus, no LTIP acceleration, non-compete enforced without waiver.
Our negotiation:
- Notice-period: 12 months instead of 6 (per service contract) — €280,000.
- Pro-rata bonus 2026: 9 months of €120,000 → €90,000.
- LTIP acceleration: full vesting of all 3 years (€450,000 face value, ~€350,000 cash-equivalent due to discount).
- Non-compete: reduced to 12 months, enforced — payment of 50% × €280,000 base × 12 months = €140,000.
- D&O continuation: 6 years post-departure (statutory minimum for executive insurance).
- Joint press release with specified language; LinkedIn handover plan; relocation support back to the US.
Total settlement: ~€860,000 cash plus D&O protection plus reputational architecture. Improvement over employer’s initial offer: ~€720,000 plus non-cash protections.
Frequently asked questions
I’m a managing director — do I have any dismissal protection?
Limited. KSchG does not apply (§ 14(1) KSchG). Your protections derive from the service contract itself, the AGG (anti-discrimination), and case-law standards (no bad-faith termination, abuse of corporate-law power). The protections are real but narrower than employee protections.
Can I file at the Arbeitsgericht?
Generally no — disputes go to the ordinary courts (Landgericht). Exceptions: where the role was not a genuine managing-director role (no real autonomy), or for narrow post-termination employment-law claims.
I’m being offered an Aufhebungsvertrag for my Geschäftsführer role. Sperrzeit risk?
Limited. ALG (unemployment benefit) is capped at the Beitragsbemessungsgrenze. Most managing directors earn substantially above this cap and the ALG amount is not their primary concern. The Aufhebungsvertrag negotiation focuses on the substantive cash + non-cash components.
My service contract includes a post-employment non-compete. Do I have to comply?
Only if the employer continues to pay at least 50% of your last fixed salary throughout the non-compete period — § 74 HGB by analogy for Geschäftsführer (case law). The employer can waive the non-compete within 1 month of termination to avoid the payment.
What if I’m both shareholder and managing director?
Additional layer of complexity. Shareholder rights (dividends, exit) negotiated separately from managing-director severance. Often interplay with shareholder agreements, drag-along/tag-along rights, valuation mechanics.