Employment of a General Director: What a Company Needs to Know



Employing a general director (president, general manager etc.) as a company's sole executive body is a complicated matter of particular concern to today's corporate owners and the authorized officials charged with the due maintenance of personnel documentation (i.e. HR specialists, accountants). A company's proper documentation of labor relations with its general director -- in accordance with the provisions of applicable law -- is key, first and foremost, to the establishment of a mechanism of interaction over the course of development in relations between the general director and the company's owners, and secondly, of ensuring the possibility of an amicable "divorce" should one become necessary -- an advantage with critical practical applications.

It must be noted that under applicable RF law and practice, the relations between a company and its general director constitute employment relations, a fact which has been confirmed by the RF Supreme Court. Thus, the company will be obliged to enter into a written employment contract with the general director, to pay his/her salary, and to provide safe working conditions, etc. Moreover, if the company's general director is a foreign national, it will be obliged to obtain the required migration permits. The assumption by a foreign national of the duties of general director in the absence of duly-obtained migration documents constitutes a violation of migration laws and may result in the imposition of administrative liability against the employer, i.e. the company and its officials.

In today's business world, the establishment of "non-competition" ground rules is of particular concern to employers. As distinct from the law of many foreign countries, Russian law neither defines nor accepts the concept of "non-competition." However, applicable legislation does provide for certain restrictions with respect to a general director's employment. Thus, a general director may only be hired by a secondary employer with the express permission of the company's authorized body. However, many other specialized rules pertaining to general directors and generally understood to fall under the "non-competition" concept are not directly established by RF law. In practice, therefore, companies frequently utilize other legal mechanisms to protect their interests, i.e. the establishment of "trade secret" regulations with respect to valuable information, which require the employers to implement a number of measures that are listed in law in order to ensure due protection of their trade secrets..

The RF Labor Code establishes additional grounds for the termination of employment contracts with general directors. Thus, the employment contract with the general director may be terminated at any time by decision of the company's authorized body. In such cases, however, it must be remembered that in the absence of any wrongful action on the part of the general director, the employer will be obliged to pay him/her the severance allowance specified in the respective employment contract, but in any case no less than three average monthly wages. The absence of an employment contract with the general director (quite common in practice), and therefore the lack of a written agreement as to severance pay, or, conversely, the existence of an employment contract that fails to specify severance pay, may lead to a labor dispute with the general director.

It should be noted that the employment contract with the general director may establish additional grounds for termination aside from those expressly provided by applicable law.

It is difficult to overstate the significance of the post of general director at Russian companies, and it is frequently the case that conflicts between the general director and corporate owners boil down to labor disputes. When this happens, a well-drafted employment contract can often break the deadlock and, in certain cases, even save the business.