Legal advice for hiring executives in companies

Hiring managers requires some legal caution on the part of the company. In the regulation of these labor relations, the conventional question plays a more relevant role than in the hiring of other positions. Especially when it comes to staff with the consideration of senior managers.

That is why it is essential that, when hiring people with high responsibilities, the company audits their needs and contracts with the help of a labor lawyer. During this analysis, the true nature of the relationship can be determined, as well as the clauses that it should include. the contract to prevent legal problems. 

In our article today we want to gather some legal advice, as we believe that the company should know these details before incorporating new members in prominent positions.

The relationship with managers and directors: labor or commercial?

The first thing we should analyze before hiring a person for a managerial position is whether we are dealing with a labor or commercial relationship. We assume that management positions exercise powers inherent to the legal ownership of the company. 

If the exercise of such powers derives from the condition of the owner of the company, as a general rule, we will be dealing with a commercial relationship. Thus, the performance of functions of direction, management and representation of the company by the members of the administrative bodies of the company does not imply an employment relationship.

A different situation occurs if these functions are carried out by delegation of the administrative body. In this case, the component of alienation proper to labor relations concurs. Therefore, only when the functions of the owners of the entity are exercised will we be in a labor relationship. 

Hiring senior managers: common or special relationship? 

Determining whether we are dealing with a commercial or employment relationship may require the assistance of a lawyer specialized in Company Law. But even when we know that we are dealing with an employment relationship, we still have to find out if it is a common relationship or a special relationship. 

It is a special relationship that links the company with a senior manager. And he is a senior manager who performs his duties with independence, autonomy and responsibility, and with the sole limit of the instructions and criteria given by the governing and administrative bodies of the company.

If there are other limitations (be they functional, hierarchical or geographical), it is most likely that we are dealing with a middle manager or a manager not subject to the special senior management relationship. To hire managers under a common relationship we must comply with the provisions of the Workers' Statute, and not in RD 1382/1985.

In summary: only senior management personnel are subject to RD 1382/1985, leaving the rest of managers and middle managers linked to the Workers' Statute and the company's partners to Corporate Law.

The importance of the employment contract

If, after carrying out the previous analysis, we are faced with a special senior management relationship, we must pay special attention to the content of the employment contract. RD 1382/1985 alters the normal sources of Labor Law to make the work regime of these professionals more flexible.

Thus, the contracts of senior managers are regulated mainly by the employment contract and RD 1382/1985. Only by express referral will the Workers' Statute apply, and alternatively, civil and commercial legislation and its legal principles are applicable. 

Therefore, the employment contract is of particular importance when it binds senior management personnel. It will regulate such relevant issues as the probationary period, the duration of the position, the agreements of non-attendance or permanence and the compensation in case of termination of the contract. This relevance makes it more than advisable to have the assistance of experienced Labor Law lawyers when drafting, reviewing or interpreting the executive contract.

Precautions to be adopted in the management contract

The first thing we must highlight is the importance of formalizing the contract in writing. This is a legal requirement, so it could be sanctioned on the understanding that the contract has been formalized for an indefinite period of time. 

Note that RD 1382/1985 applies the principle of reality, typical of Labor Law. So it will be understood that we are dealing with a senior management contract provided that the worker exercises:

<< [...] powers inherent to the legal ownership of the Company, and related to its general objectives, with autonomy and full responsibility only limited by the criteria and direct instructions emanating from the person or the higher bodies of government and administration of the Entity that respectively occupies that ownership >>.

Director's origin

The written form of the employment contract is particularly important if the person who will fill the senior management position comes from the company itself. And this is because, when the position is filled through internal promotion, the company should determine whether the common relationship prior to that of senior management is renewed or suspended. 

The lack of foresight will cause it to be considered suspended, which implies that when the special employment relationship of senior management is terminated, the worker will return to their common employment relationship of origin. This is without prejudice to the compensation to which they may be entitled and with the sole exception that the special relationship is terminated by appropriate disciplinary dismissal.

Trial period

The senior management contract may establish a trial period as long as its duration is indefinite. In this case, the trial period may be extended up to nine months, and the parties may freely withdraw from the contract.

Hours and duration of the contract

In senior management contracts, both the working day and the duration of the contract can be freely agreed. In fact, these employees are exonerated from the registration of the day.

To this end, RD 1382/1985 only establishes two provisions. In the first place, that if a duration of the contract is not agreed, it will be understood to have been concluded for an indefinite period of time. And, secondly, that the benefits of the senior manager should not "notably exceed those that are usual in the corresponding professional field."

Non-attendance and permanence 

Another element that should regulate any senior management contract is non-competition. Although, in general, providing services in other companies is forbidden for senior management personnel, the truth is that it is presumed that the employer authorizes such competition when it is not prohibited in the contract and the link to the other company is public. 

In addition, the non-competition agreement may extend beyond the duration of the contract, for a maximum period of two years. For this, it is necessary for the company to prove a commercial or industrial interest and to adequately compensate its managerial position. 

On the other hand, the establishment of permanence agreements is common when the company offers a professional specialization to its senior managers. If this period is not met, the worker should pay compensation to the company.

It is also common to use other types of systems that reward permanence in the company, such as incentive systems. For more information we recommend reading our post about phantom shares and stock options.

Another of the key issues to regulate in the senior management contract is the compensation corresponding to the withdrawal of the contract. But due to the length of the matter, we refer the reader to our article on the termination of senior management contracts.

In summary, hiring managers requires a detailed legal study, especially if we are talking about senior management personnel. Contact us, and our lawyers specializing in labour law will study your specific case. We Have:

Law firm in Barcelona
Law firm in Madrid
Law firm in Reus