Dismissal of the CEO: Correlation Between Corporate and Labor Law

The special status of a Russian company's CEO -- the 'general director' -- is determined by the Russian Labor Code and federal laws. These federal laws and the Labor Code prescribe special grounds for emergence and termination of powers of the CEO. Such special grounds may be either the decision of the authorized body of the company or that of the owner of such company's property. It has been established in the legislation that the Federal Laws prevail over the Labor Code in respect to the relations between a company and its CEO. The problem is that the Federal Laws do not prescribe any procedure for dismissing the CEO, yet the procedure is fixed by the Labor Code.

Consequently, the procedure for terminating the powers of the CEO is governed by virtually unrelated legislative acts, which in practice invites quite a variety of problems and questions related to, among other things, the procedure for terminating powers of the CEO in the period of his or her temporary incapacity to work.

The Russian Constitutional Court has cast some light upon this issue in a decision that states that the legal status of a company's CEO differs substantially from the status of other employees, which is determined by the particulars of his labor activities and place and role in the management structure of the legal entity, resulting in special rules for terminating the labor contract with the CEO.

As an exception, the federal legislation does not compel the owner to provide grounds for dismissing the company's CEO pursuant to the Labor Code, as the termination of the labor contract on the above grounds is not recognized as a measure of legal liability (e.g. for breaching the labor contract terms or for other violations). Moreover, the general guarantees of dismissed employees do not apply to CEOs. The Labor Code provides for a special guarantee for CEOs in form of money compensation for early termination of the labor contract.

The legislation, however, does not release employers from the legal duty to comply with the procedure for dismissing the CEOs. Consequently powers of the company's CEO must be terminated by virtue of the relevant resolution on termination of the labor contract.

This provided, the resolution on the termination of a CEO's labor contract may be made at any time in accordance with the legislation governing the corporate status of such company. The Labor Code, however, does not allow executing the said resolution in form of an order on dismissal of the CEO during his or her temporary incapacity to work. In the latter event the date of actual dismissal in such order on dismissal must be the date following the last day of the period of temporary incapacity to work. This viewpoint has been confirmed by resolutions of the Russian Supreme Court.

It should be noted that the grounds for annulling the resolution on dismissal may only be its discriminatory nature or a violation of the decision-making procedure established by the company's statutory documents -- for instance, absence of a quorum, lack of powers of the voting persons etc.

Another debatable issue is the legal nature of termination of the CEO's powers by virtue of resolution of the authorized body of the company -- that is, whether it is a dismissal at the initiative of the employer or a circumstance not dependent on the parties' will. This issue is very unclear. It is obvious that the entity represented by the CEO is the employer for all employees. But it is unclear whether the Board of Directors or the General Meeting of the company may be classified as the representative of the employer in relation to the CEO.

The Supreme Court of the Russian Federation provided some clarity in this matter and stated that in the event that, for example, another person has been elected to the elective post occupied by an employee in the period of the labor relations, or the voting results have been revised, the labor contract with such employee is subject to termination due to non-election (Clause 3, Article 83 of the Labor Code of the Russian Federation).

Thus, early termination of the labor contract on the basis of a proper resolution of an authorized person or body is deemed by the Supreme Court to be circumstances not dependent on the parties' will. This implies that the general guarantees provided for by the Labor Code to employees upon dismissal at the initiative of the employer -- for instance, the prohibition to dismiss pregnant women -- must not apply to CEOs.

In conclusion, we should express the hope that in the nearest future court practice will have a uniform approach to the procedure for dismissing the CEO and will eliminate the existing problems and uncertainties in this matter that falls within the joint jurisdiction of the corporate law and labor law.