Tag: contracts

Societe Anonyme: Contracts with Members of the Board for the Provision of (Additional) Services

The Board of Directors of the Société Anonyme is its body, which is responsible for its management and representation. Its existence is provided and its operation is governed by law (basically: articles 77-115 law 4548/18). It acts, in principle, collectively. The principle of collective action, however, is not without its exceptions; it is therefore subject to divergence. The Board of Directors is, by its nature – as already mentioned, an instrument of the SA. Its members, as members of a collective body, are considered to be linked, respectively, with an organic relationship with the SA. The relationship of the Board member with the SA is twofold. It is distinguished (: “theory of separation”) into external-organic and internal-subjective. We will be concerned at this time with the provision of additional services to the SA by the member of the Board of Directors, regardless of their organic position and relationship: on the basis of a “special relationship”. By contracts, indicatively, of employment, works, independent services or mandate.

The special relationship between board member and SA

We often find, in practice, that the members of the Board of Directors provide additional services to the SA – especially in the context of the family SA. These are services that go beyond the narrow confines of its administration – as defined by law. They are, in other words, outside the framework of the narrowly defined duties of the members of the Board of Directors (as members, ie, of the specific body of the SA). These services are provided in the context of a “special relationship” (: article 109 par. 3 law 4548/2018). This specific relationship may include, for example, the type of contracts of employment, works, independent services or mandate. In any case, the correct legal characterization of this special relationship is (also) left, as we have already analyzed, to the judgement of the courts.

With special reference to the specific (“special”) relationship, the legislator explicitly confirms the possibility of concluding such contracts, in order to remove any (possibly existing) relevant doubts. And even more: it demonstrates their difference (of these contracts and relationships) from the relationship that connects the members of the Board of Directors with the company due to their election or appointment. It confirms, in other words, that these are parallel relationships. Also: completely distinct relationships-based on their content.

The content of the special relationship

The content of the parallel (and special) contractual relationship that can be concluded by the member of the Board is, as already mentioned, the provision of (any) additional services. Its content is contrasted, in this way, with the content of the organic relationship that connects the SA with the member of its Board of Directors. The (organic) relationship that is determined by the law or the articles of association of the SA.

The content of the specific, additional, services (and the related special relationship and contract) may be, inter alia, that of the legal, financial or technical consultant. The most common: the provision of services of an executive that usually results from a contract of employment concluded by the member of the Board of Directors with the SA.

The difficulty of distinguishing the two relationships and qualities (member of the Board of Directors vs employee / provider of services in the SA) depends on their scope and content. This distinction turns out to be easier when the member simply participates in the Board of Directors, without being individually in charge of exercising (organic) power of administration, management and / or representation. On the contrary, when the member of the Board acts as a substitute body, that is, when the powers of the Board have been transferred in whole or in part, the distinction does not seem easy. In fact, in cases where the content of the special legal relationship concerns the management of the company and not just a field of action, the difficulties of discrimination are multiplied.

The distinction, however, of the individual, aforementioned, relations seems absolutely necessary. This is because the regulations reserved by Law 4548/2018 on the conclusion and operation of the special relationship that connects the SA with the member of its Board of Directors, are different from those that govern their organic position (as a member of the Board).

The special relationship as a transaction of the SA with a related party

The members of the Board of Directors are included in those that the law identifies as parties related to the SA (:”parties”). The SA’s transactions with related parties are now regulated in articles 99-101 of law 4548/2018 (as they replaced the well-known article 23a of law 2190/1920). These are transactions with those parties who, due to their position, are likely to influence the content of these transactions based on their own interest. It was therefore deemed necessary to provide a regulatory framework aimed at protecting the SA. The above transactions reasonably include the conclusion of any special relationship (indicatively: employment, works, independent services or mandate contract) of the SA with a member of its Board.

The conditions for concluding a special contract with related parties

For the valid conclusion of a contract of the SA with related parties (and in this case, a special employment, works, independent services or mandate contract with members of the Board) the observance of a series of procedural rules and publicity rules is necessary (articles 100 and 101 of Law 4548/2018 ). These rules, in the light of the conclusion of a special contract of a member of the Board of Directors with a non-listed SA, are analyzed below:

(a) The granting of a license

In General

According to paragraph 1 of article 100 of law 4548/2018: “the license to establish a transaction of the company with a related party or to provide collateral and guarantees to third parties in favor of the related party … is provided by a decision of the Board of Directors…”. The license granted is valid for a period of six months.

The license must be special (article 99 of law 4548/2018). This means that the conclusion of the special contract should be included in the agenda of the meeting of the Board. In addition: its content (especially its financial object and its duration) must be submitted to the decision of the body responsible for granting the license (indicatively: 1990/2018 Court of Appeal of Thessaloniki).

The Board of Directors is the competent body for issuing the license. In fact, the possibility of further assignment of the specific competence is explicitly excluded (article 100 par. 2 law 4548/2018). This provision of the legislator introduces an innovation in relation to the previous regime, which granted competence to the General Assembly (article 23a of law 2120/1920). In the justifications of the specific choice of the legislator, the fastest and simplest control procedure by the BoD is considered. In addition, the Board, due to its managerial powers, is considered the most appropriate body of the SA to recognize the benefit or not of the conclusion of contracts (as such: the contract of employment, works, independent services or mandate).

The competence of the General Assembly at the request of shareholders

In the event that the Board of Directors grants permission for the conclusion of a special relationship between the SA and a member of its BoD, it is obliged to announce its decision to the General Commercial Registry. Within ten (10) days from this announcement, shareholders of the SA representing 1/20 of the capital are entitled to request the convening of a General Assembly, in order for the latter to make a decision on the issue of granting a license. In fact, it is possible to (statutorily) reduce this percentage.

Any transaction with an affiliated person, for which permission has been granted by the Board of Directors, is considered valid from the beginning, but it is subject to suspensory condition. In other words, either the aforementioned ten-day deadline must pass without any actions taken or the decisive responsibility is assumed by the General Assembly due to a request of 1/20 of the shareholders of the SA. In the latter case, the license for the transaction must ultimately be granted by the General Assembly. This license is not granted if shareholders representing 1/3 of the share capital object (article 100 §5 of law 4548/18-as in force, after modification of the initial wording of the provision, which provided for non-participation of related parties in the formation of a quorum and majority, after our own public intervention).

The competence of the General Assembly in the absence of a quorum of the General Assembly

As we have analyzed in our previous articles, the law deprives a member of the Board of Directors of the right to vote on issues in which a conflict of interests arises between them (or the related parties) and the SA. Such a case is the conclusion of a special relationship between the member of the Board of Directors and the SA. Therefore, the other members of the Board of Directors make the necessary relevant decision. However, the exclusion from the voting may concern so many members that the remaining ones do not form a quorum. In this case, the remaining members (regardless of their number) are responsible for convening the General Assembly (to make a decision on granting permission to enter into a special relationship).

(b) Adherence to the publicity process

In order to complete the process of granting a license for the conclusion of a special contract of the SA with a member of the Board of Directors, it is required to observe the publicity provided by law. In particular, according to article 101 of law 4548/2018: “The Board of Directors announces the issuance of a license for the preparation of a transaction either by itself or by the General Assembly, as well as the expiration of the deadline of paragraph 3 of Article 100 (ie the above mentioned ten-day deadline) …”. This announcement is submitted to publicity (: posting in the General Commercial Registry) before the completion of the transaction. At the same time, paragraph 2 of the same article sets out the minimum content that the above announcement must have.

Exceptions to the obligation to issue a license

The case of current transactions

The obligation to grant a license is redundant in the event that the transaction (in this case the contract of the SA with the member of its Board of Directors) falls under the current transactions. Current transactions are defined, in article 99 §3 a’ of law 4548/2018, as “… those that are normal in relation to the operations and the object of the business activity of the company, in terms of their type and size and are concluded under market conditions”. In addition, according to the case law formulated under the pre-existing legal regime, a current transaction means “… that which, by its object, falls under the contracts drawn up in the context of the company’s day-to-day operations, ie whose terms are the usual terms of the contracts the company enters into with other traders. ” (1245/2018 Supreme Court).

The case of the pre-existing contract

A different case of exclusion from the licensing process is that in which a member of the Board of Directors is associated with the SA with a contract of employment, works, independent services or mandate, concluded before their election (or appointment) (1364/1990 Supreme Court, 21/2019 Single Member Court of First Instance of Volos). An issue, however, arises when the pre-existing contract is amended, after the election / appointment of the member of the Board of Directors (: eg. increase of the agreed fees). Depending on the content of the amended terms of these contracts (of employment, works, independent services or mandate), their prior approval by the competent body may be necessary.

The remuneration of the members of the BoD on the basis of their special relationship / contract

The members of the Board of Directors who have concluded an employment, works, independent services or mandate contract with the SA are, reasonably, entitled to receive remuneration – precisely on the basis of that contract. The specific remuneration is granted cumulatively with the (possible) remuneration received by the member of the BoD due to his / her organic position (ie, as a member of the BoD). These are fees which, although coming from the same SA and going to the same person, have different legal treatment. Thus, the fee from the special relationship / contract does not require prior regulation by law or the articles of association. It does not require its approval by the General Assembly (109 §1, Law 4548/2018) – in contrast to the remuneration that may be granted under the organic position. In fact, the law (article 109 §3, law 4548/2018) explicitly excludes the remuneration agreed on the basis of the special contract from the procedure and the conditions for granting remuneration to the members of the Board of directors of article 109 of law 4548/2018.

Each member of the Board may, therefore, have a second capacity within the SA: the one that connects them with an additional relationship (employment, works, independent services or mandate) with the company. The two properties / legal relations (organic and special) are (and must remain) completely distinct. The first (organic) is governed, exclusively, by the mandatory provisions of the Law of Société Anonymes. On the contrary, the regulatory framework of the second (special) relationship is additionally governed by Civil (or Labor) Law regulations-depending on the contractual type which is chosen each time (mainly on the basis of tax and insurance advantages) and to which, in the end, it falls under.

However, the separation of the qualities of the shareholder, the member of the Board of Directors and the employee / provider of services in the SA is important for a number of other reasons. Some of them have already occupied us in our articles (including: the need to separate the fees and finances of the entrepreneur / board member from the company’s fund, the use of the facilities provided by the law on SAs in terms of liquidity from businessmen / members of the Board).

However, the separation of the above-mentioned qualities seems necessary on the basis of alignment with the (not typically necessary for non-listed companies, but substantially absolutely necessary) corporate governance rules.

Rules necessary for the transition to the new era ˙ to the next day.-

Stavros Koumentakis
Managing Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (March 14, 2021).

Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

March 14, 2021
Standby Contracts

Standby Contracts: Blessing or a curse?

I. Preamble

Numerous companies are called upon to satisfy drastically changing needs. Sometimes, those needs are emerging as a result of circumstances no one could predict. It is, of course, not possible for a business to employ a significant, at times, number of employees just because “maybe, at some point, some of them may be necessary”. The costs involved would be unbearable. And, consequently, deterrent.

A suitable solution for such businesses (and such cases) are the so called “standby contracts”. The business-employer agrees with specific employees that the latter will be available and ready to offer their work. As long as the relevant need arises. (Of course) For a fee.

Standby contracts are an institution that, unfortunately, is not provided for by law. But how does case-law approach this institution?

II. The concept of employment

“In the beginning was…” (one could argue) the concept of employment, under labor law. And that one would have a strong argument. The existence of employment is a prerequisite for the application of the provisions of labor law.

The importance of the concept of employment is fundamental. We have yet to manage, however, to agree on how employment is determined. Or, to take it a bit further, to include in a legal text a (commonly accepted) definition of it. The distinction of an employment contract from contracts and concepts close to it often proves very difficult.

Theories on what constitutes employment vary and are constantly changing. And what is changing as well is what case-law considers as criteria for identifying employment. The Supreme Court has found that: “for the purposes of the application of the provisions of labor law, employment shall normally mean the provision of the employee’s intellectual or physical activity, which is carried out under the control of the employer and is intended to achieve an economic result”.. This assumption may, however, give rise to the misconception that employment requires the positive action of the employee in order to be understood as such. However, the Supreme Court makes clear, that “… there is an employment relationship even when simply the freedom of the employee is restricted, when the latter undertakes the obligation to be standby and ready to offer their work, when this is required by the employer”. (indicatively SC 814/2014).

It is settled case-law that one’s readiness for work is a form of employment. Standby contracts, however, are not provided for by law. The results of this particular regulatory gap is the difficulties in defining employment and its various forms. Most importantly: the uncertainty and ambiguity around the rules that govern it.

III. The forms of a standby contract

1. In general

Case-law distinguishes two basic forms of a standby contract:

(a) actual standby contract and

(b) non-actual standby contract (mere or on call).

The criterion for this distinction is the degree to which the employee is standby.

Case-law has found in some cases that there are “intermediate standby stages”. These are contracts found between the two aforementioned categories. Contracts that are entered into in the context of the freedom of contract (CC 361) and are characterized by the intensity of the alertness required from the employee (indicatively: SC 110/2014, SC 8114/2014, SC 70/2010).

It is for the competent Court to determine the degree to which an employee is standby at any given point. Also, the degree to which an employee is required to be alert. Depending on the ruling of the court, the standby contract will fall into one of the two basic categories mentioned above.

2. Actual standby contracts

When actually standby, the employee must:

(a) Be for a specific period at a predetermined location (in the business or outside of it) and

(b) Maintain their mental and physical alertness so as to be able to offer their services the moment the employer or circumstances so require.

That is, it is not a simple restriction of the employee’s freedom. The employee, when actually standby, is required to, simultaneously, constantly be alert and available to the employer. And do so for the time predetermined by the employer.

3. Non-actual standby contract

In cases of non-actual standby contracts, the employee is obliged to (only) partially limit their freedom of movement for the employer. Ultimate goal; the employee’s availability and ability to offer their work at any time. In non-actual standby contracts, the employee also retains the ability to rest or be away from the workplace. The employee is even entitled to engage in other (irrelevant) occupations. That is to say, they are not required to be physically and spiritually alert. In these cases, we are talking about mere or on call standby.

The Greek law does not distinguish the meaning of mere or on call standby. It puts them, as a whole, in the broader category of non-actual standby.

In contrast, the Court of Justice of the European Union considers this distinction to be significant (from merely being standby to being on call). Indeed, in both cases, the employee does not have to be constantly alert. The differences, however, between these two categories of standby is not without significance.

The difference between the two, lies on whether or not a restriction is imposed by the employer on the employee on where they can be (on top of the time restriction).

In particular, in cases of mere standby duty, the employee is not entitled to be away from the workplace, which is determined by the employer.

On the other hand, when the employee is on call, they freely choose where they will be. One necessary condition: to be reachable at all times. That is, the employee must ensure that, should the employer call them, they will be able to provide, within reasonable time, their work (indicatively.: Case C-151/02 (Jaeger)).

IV. The legal importance of distinguishing between actual and non-actual standby contracts

1. Regarding the application (or not) of the provisions of labor law

The distinction of the various types of standby contracts made by Greek case-law is not without significance. This is because each type is approached differently.

In particular, the actual standby contract is fully equated with “normal” work (work offered when an employee takes some positive action) in the eyes of the law. And this, regardless of if the employee will, at the end, be required to provide their work or not. Therefore, all provisions of labor law apply in this case.

On the other hand, a non-actual standby contract is treated by Greek case-law as a peculiar form of work. This is why it does not fall within the regulatory scope of all the provisions of labor law.

2. Regarding the remuneration of employees

The importance of the above distinction (actual/non-actual) is highlighted when dealing with the issue of the salaries owed.

In particular:

(a) In cases when an employee is actually standby, case-law applies, with no exception, all the provisions of labor law regarding the salaries owed. Specifically: the minimum wage limits and increases. Also, the allowances for night and overtime work. Finally, the increments related to work provided on Sundays, holidays or rest days.

(b) In the case of non-actual standby contracts, however, such treatment (as the one described under a) is not reserved. Case-law exempts non-actual standby contracts from the protective provisions of labor law with regards to the minimum wages provided for by Collective Agreements. Also, from the surcharges and compensation due for overtime and night work. Lastly, from the increments related to work provided on Sundays and other public holidays.

The specific exemptions mentioned above do not, however, mean that the employee concerned (being on non-actual standby duty) is not entitled to a remuneration for the restriction of their freedom. According to Greek case law, the remuneration to be paid to this employee is contractually agreed (between the employer and the employee). However, the remuneration agreed may be lower (or substantially lower) than the statutory minimum wage. In the event, however, that the salary is not contractually agreed upon, the ‘ordinary’ salary (653 CC) is paid. And ordinary wages may, in fact, be lower than the legal minimum wage.

It is a fact that in case of a non-actual standby contract, a great number of protective provisions regarding the remuneration of the employees do not apply. However, case-law accepts, in these cases, that the provisions regarding the holidays, holiday and leave pay, do still apply. And that so do the provisions regarding the termination of employment contracts and the dismissal compensation owed.

3. Regarding the working time limits

3.1. The establishment of maximum working time

One of the main concerns of the protective provisions of labor law is the protection of the health of the employee. This objective is achieved, inter alia, by the establishment of maximum permissible working time limits. This aims to: (a) prevent the exploitation of the employee’s financial need for work; and (b) ensure a reasonable time for rest and participation in social life.

3.2. The connection between the maximum working time and actual standby duty.

From the aforementioned, it becomes clear that the provisions setting time limits fully apply to the actual standby contract.

However, the same is not true of the non-actual standby contract. Case-law does not accept the application of the relevant provisions in this type of employment contract. We are therefore led to the conclusion that the employer could agree with an employee (who is on non-actual standby duty), the latter’s availability to provide work around the clock.

However, this extreme assumption is obstructed by EU law.

3.3. The connection of mere standby duty with EU law

Mere standby duty is connected with EU law via the adoption of three Directives, regulating the organization of working time. These are: (a) Directive 93/104/EC, which has been transposed into Greek law by P.D. 88/1999 (B) Directive 2000/34/EC, which amended Directive 93/104 and transposed it into Greek law by P.D. 76/2005, and lastly (c) Directive 2003/88/EC, which codified the provisions of the two previous Directives.

EU law, therefore, provides for maximum working time limits. It requires, at the same time, that the employee be provided with at least eleven (11) consecutive hours of rest within 24 hours. Directive 93/104/EC distinguishes time between ‘working time’ and ‘rest time’. These two concepts are mutually exclusive.

The ECJ accepts that working time is the time during which the employee is at work, at the disposal of their employer, and perform their duties in accordance with national laws or practices.

3.4. The time while the employee is on call is not considered working time

Moreover, the ECJ consistently held that the time while on mere standby is working time. On the basis of this assumption, protective provisions setting working time limits apply in these cases (of mere standby). Indeed, at this point the distinction of the ECJ between the concepts of mere standby and standby on call (as discussed under III.3) is essential. This is because the latter is treated differently by law.

In particular, the ECJ does not consider as a working time the time the employee is on call. In such cases, working time starts when the employee receives a call to provide the agreed work. The end of the working time coincides with the completion of the assigned task. As a consequence, only for this period (start-end) the working time limits apply.

3.5. Deviations from working time limits

The needs of a business may, provided the employee agrees, lead to deviations from the maximum working time (Article 17 of Directive 93/104). Some of those deviations will mostly occur under actual or, mainly, mere standby. However, in such cases it is mandatory, in accordance with the ECJ, to provide the employees concerned with equivalent periods of compensatory rest at intervals, immediately following the corresponding working time. In addition, such a reduction in the daily rest period should not result in exceeding the maximum weekly working hours.

V. Technology and standby

The employee’s continued availability/standby by utilizing/using digital technology should be equated with on call duty. A readiness to provide work that is practically possible through a laptop, a tablet and even the employee’s smartphone.

The employee is at the disposal of their employer (only theoretically?) on a continuous basis. The employee can, and is no longer unusual, undertake and perform a task that does not require their physical presence.

It is obvious that reading a professional e-mail could be seen as tantamount to interfering with the employee’s private life and time. And it can happen at any time. Off-hours included. So, combining digital technology with the non-application of legal work time limits regarding the on call standby duty is problematic. This is because it may deprive the employee, at least in part, of their right to rest.

VI. In conclusion

Standby contracts for specific activities, sectors and businesses are, undisputedly, a real and present need. Many businesses are adopting standby contracts and they have seen positive results because of them. And those contracts also have satisfactory (and often desirable) results for employees.

So, there can be no doubt that the existence of standby contracts is absolutely necessary.

The legality of this conclusion is not in dispute. Their regulatory framework, however, is only determined by case law. Unfortunately, there is no relevant legislation. This inevitably results in legal uncertainty. Of course, for employees as well. But especially for businesses.

The involvement of the legislator proves necessary. After all, it is the legislator who is able to make the necessary adjustments.

The basis for a legislation on standby contracts should be based on: (a) the particular circumstances of particular sectors and businesses, (b) their increased need to have employees on standby at specific times and/or for specific activities and (c) the potential of digital technology and the reality that it shapes.

The relevant legislative intervention is not a luxury.

It is simply an undue need.

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (March 8th, 2020).

Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

March 8, 2020
Changes regarding the termination of Employment Contracts

Changes regarding the termination of Employment Contracts that are initially set for an Indefinite Period: The New, Important, Data

1. Preamble

All of us, no matter our political beliefs or which party we support, seem to want the (long-awaited) development of our country. We will all, most likely, agree that this development requires, among others, private investments and the creation of new jobs (when we, permanently, succeed in breaking away from Carl Marx’s position that: “Capital is dead labor, that, vampire-like, only lives by sucking the blood of the living labor. The more it lives, the more labor it sucks”).

In our country, we have encountered all possible employment models: from medieval working conditions to the uncontrolled (most likely met as a pre-election campaign strategy and usually catastrophic for our country’s economy) benefits given to the private and public sector employees.

We will also (most likely all) agree that, we will have to by all means protect the balance between conflicting interests in employment relationships, in order to avoid leading the country to dead ends, as past practices have done; dead ends that contributed to the “crisis” that brought us in the current adverse financial situation.

There has been an intense discussion for the past month (which peaked in the recent vote, on Friday, 17^th of May, of article 48 Act 4611/2019, which replaced subparagraph 1 par.3 article 5 Act 3198/1955) about how making terminating employment contracts set for an indefinite period more complex affects employment relationships: the existence of a “valid reason” for the termination of the employment contract from the part of the employer was added to the requirements, with the employer being responsible for invoking and proving its validity.

But what has the status been so far and what will be happening from now on?

2. The important changes made

2.1 Terminating employment contracts initially set for an indefinite period in the previous legal scheme

According to the first subparagraph of par. 3 of article 5 of Act 3198/1955:

“3. Termination of the employment agreement is valid, as long as it is done in writing, the compensation due has been paid and the employment of the employee being laid off has been registered with IKA (insurance body of Greece) or the laid off employee has been insured”.

Therefore: The termination of the employment contract set for an indefinite time was valid without the employer invoking any reason. The only obligation of the latter was the payment of the compensation that was due to the employee. When the latter regarded the employer was misusing the right given to them by law to terminate the employment agreement, the employee could appeal before the courts and as for the cancellation of the termination and the continuation of the employment relationship. In this case, the employee had to prove the claims they made.

2.2 The New Legislation

With the provision of article 48 of Act 4611/2019, the first subparagraph of paragraph 3 of article 5 of Act 3198/1955 (‘A 98), is replaced, effective immediately, as follows:

“3. The termination of employment is valid, only if it is based on a valid reason, as such is defined in Article 24 of the revised European Social Charter, ratified by article one of law 4359/2016 (A’ 5), it is done in writing, the compensation due has been paid and the employment of the laid off employee has been registered with IKA or the laid off employee has been insured. In case the termination is challenged, the employer is responsible for invoking and proving that the requirements were met”.

Therefore: From this point forward, the law requires, in order the termination of an employment contract set for indefinite period to be valid, a “valid reason”, which the employer terminating the employment has to invoke and prove. For the definition of the term “valid reason” (in detail below, under 3.3) the provision is referring to the revised European Social Charter (below, under 3.3), which is already ratified by Greece, (with an increased formal power) and more specifically in article 24 of said Charter (below, under 3.2).

2.3 What changed comparing to the previously exiting legal scheme when it comes to terminating an employment contract initially set for an indefinite time?

According to the pre-existing legislation, the employer could terminate any employment contract set for an indefinite time, with the main requirement being the payment of the compensation of dismissal. When the employee considered there was a misuse of this power, they applied to the competent courts and the employee was responsible for proving the misuse of thee employers right.

The new regulation brings fundamental changes: the employer now must invoke and prove the requirements of a valid termination are satisfied, therefore the existence of a (now required) valid reason.

This position the Greek law has taken is compatible with the explanatory memorandum of the recent (article 48 of act 4611/2019) regulation concerning the necessity of the existence of a valid reason (see the report), as well as with the position the European Committee of Social Rights took on the provision of article 24 of rESC.

2.4 In Conclusion

In contrast with what was been happening so far, the employer can no longer rest assured just by paying the compensation of dismissal when terminating an employment contract initially set for an indefinite time. They shall keep in mind that a valid reason must be invoked. This reason should have something to do with the behavior or the skills of the employee, or the operational requirements of the establishment. Even more so: invoking and proving the existence of this valid reason, is theirs (the employer’s) responsibility.

Concluding: The requirement for the existence of a valid reason for the termination of the employment contract set for an indefinite time and also the “burden” of invocation and proof of such reason being on the employer, is certain to fill the court halls (a first “taste” of the stand the courts will take under 4), boosting our (lawyers’) bank accounts -no matter whose side you are defending.

Let us all just hope that it will have positive effects not only in ensuring the employees’ rights (as the law maker intends it to) but also to the development of the economy, the businesses and the country.

3. The Revised European Social Charter and the “Valid” Reason

3.1 The European Social Charter and the Revised European Social Charter

According to the explanatory memorandum for the Ratification of the revised European Social Charter:

“The European Social Charter (ESC), international convention for the protection of social rights, was adopted by the Council of Europe in 1961 and ratified by Greece with Act 1426/84 (Government Gazzette No 32A/21-2-84).”

The ESC is constantly developing by the precedents set by the European Committee of Social Rights, which oversees its application, and by incorporating Protocols in the ESC that widen the range of the rights protected and improve the mechanisms set to control. In 1998, the Additional Protocol was added to the ESC, which expanded the scope of the Charter with the recognition and protection of new rights. In 1995, a new Additional Protocol was added, providing with a system for Collective Complaints. Greece ratified the two Additional Protocols with the Act 2595/98 (Government Gazzette 63A/24-3-98). In 1991, the amending protocol was added, which improved the mechanisms set to ensure the application of ESC and was ratified with Act 2422/1996 (Government Gazzette 144A/4-7-96).

In 1996, the European Social Charter was revised, in order to be more up to date and to include more rights. The Revised European Social Charter was adopted on the 3rd of May, 1996, in Strasbourg, where it was open for signing, and was entered into force in the 1st of July, 1999, after the three necessary ratifications. It takes in consideration the developments in labor legislation and social policy, the ones that happened since the creation of the Charter in 1961, and intends to replace it.

The rights protected by the ESC divided to four areas: a) Employment, Training and Equal Opportunities, b) Health, Social Insurance and Social Protection, c) Labor Rights and d) Protection of Children, Family and Immigrants.

Greece has already signed the Revised European Social Charter in the 3rd of May 1996. The ratification of the Revised Charter improves, beyond any doubt, the level of protection provided in the area of social policy and proves the active interest of our country in the protection of human rights.

The Revised European Social Charter is already national law since its ratification with Act 4359/16. In addition, it is protected under the Greek Constitution (article 28 par. 1).

3.2 Article 24 of the Revised European Social Charter (RESC)

The European Social Charter (ESC) is, as already mentioned, an international convention for the protection of social rights. In 1996, the ESC was revised in order to be more up to date and to include more rights.

According to article 24 of RESC: “In order to reassure the effective application of the right of protection of the employees in cases of termination of the employment relationship, the parties must recognize that: a. the right of all employees to not have their employment relationship terminated without a valid reason relating to their ability or behavior, or based on the operational requirements of the establishment, of the facilities or the agency, b. the employees’ right, those ones whose employment relationship is terminated without a valid reason, to a sufficient compensation or other proper rectification. For this reason, the parties have to make sure that the employee, believing that their employment relationship is terminated without valid reason, has the right to appeal to an impartial body.”

3.3 What constitutes a “Valid reason” according to Article 24 of RESC

It is accepted that the valid reason required by article 24 of RESC (and now by paragraph 3 of article 5 of Act 3198/1955) is the one justifying the proper use (and not misuse) of the termination.

There is no obstacle in ratifying this article, as long as the causality of the termination of employment coincides with article 281 of the Greek Civil Code, which is setting the requirement of good faith intention and in accordance with the financial and social objective of the right of the employer to terminate the employment contract. The reasons for termination mentioned in article 24.a. are related to the reasons that lift the unfairness of the termination of the employment contract …”

The current position of the legal theory on the “valid reason” is basically the same as the abovementioned opinion of the European Economic and Social Committee Draft Law “Ratification of Revised European Social Charter”.

Valid reason is any reason relating to the employee them self, the way they work and their attitude as an employee, the technical and financial aspects of the establishment (not necessarily the establishment’s financial difficulties) or its operational requirements. Such a valid reason could not be tolerated, of course, outside this specific context: The dismissal of an employee for reasons irrelevant to the employment relationship and business could not be tolerated (i.e. vindictiveness, union activity, sexual orientation, political beliefs, racial discrimination etc.).

Therefore, we could conclude that valid reason is any reason that negatively affects the employment relationship and justifies its termination from the part of the employer.

4. How will the courts react?

(A First Taste of The Future… From The Past)

Obviously, we cannot possibly know how the courts will rule on, very recent, new regulation. However, there is a very interesting ruling coming from the past.

The ruling of the Court of First Instance of Piraeus 3220/2017 is definitely the first, and till this day only one, as far as the writer knows, published court decision that accepts that the status of unjustified termination (ruled according to subparagraph 1 par.3 article 5 Act 3198/1955) was not compatible with Article 24 of RESC. This ruling accepted that RESC had already (after its ratification with Act 4359/16 – and according to Article 28 of the Greek Constitution) increased formal power over common Greek laws.

“With the above provision (Article 24 of RESC) is introduced for the first time in the European legislation for Human Rights a new fundamental right, which is the protection of the employee from dismissal with the initiative of the employer. The main scope of the provision is that an arbitrary and unjustifiable dismissal offends the merit and the dignity of the employee. The protection Article 24 of RESC ensures that: a) every termination of an employment contract by the employer must be based on a valid reason, which should be relevant to the behavior or the skills or the operational requirements of the establishment, b) the employer must be properly compensated for being unjustifiably dismissed by the employee, or be provided with some other form of rectification and c) adequate lawful protection must be ensured.

After the ratification of Article 24 of RESC it is clear the status of the “unjustified” termination by the employer is not compatible with the termination due to a valid reason as required by the new article. Therefore, the principle of justified termination is directly adopted by the Greek legislation and from now on the Greek courts should investigate the existence or not of a valid reason and deem invalid every dismissal that is not based on such a reason. This can be done by either directly referring to Article 24, which sets precise requirements that are explicit and free of contingent, at least regarding this issue, of course along with the provisions of 174 and 180 of the Greek Civil Code – solution that is deemed more appropriate by this Court -, or by interpretating Article 281 of the Greek Civil Code, resulting to deeming all dismissals not taking place in accordance with Article 24 of RESC (par. 23) unfair.

Regarding the consequences of unjustified terminations – besides them being invalid according to article 174 and 180 of the Greek Civil Code, the employer has to provide adequate compensation or other form of rectification, as required by national law. It should be noted that the European Committee for Social Rights has consistently held rulings that the invalidity of the dismissal and the claim of salaries of late payment and the reinstatement of the invalidly dismissed, are considered as adequate rectification, so there is no need for financially compensating the illegally dismissed. [Gavalas, What is changing to labour law after the ratification of the revised European Social Charter, E.L.L.(ΕργΔ) 2016, 130 and on].

In view of all of the above, it is clear that the rulings the court made until now resulting that a dismissal is valid even if it is not based on a valid reason (due to its “acausal” nature) and that in order for a dismissal to be considered unfair it is not enough for the reason the employer based the dismissal on to be untrue or for the dismissal to lack an obvious cause, but the for the dismissal to be invalid it should be considered to oppose to article 281 of the Greek Civil Code, should be considered to contradicts to the provision of Article 24 of the RESC, which forbids the arbitrary and unjustifiable dismissal of the employee”.

In other words: The court rulings addressing cases about actions for the cancelation of terminations of employment contracts set for an indefinite time will focus on investigating the existence of a “valid reason”. When the employer succeeds in proving the existence of a “valid reason” (relevant to the behavior or the skills or the operational requirements of the establishment) the relevant action will be dismissed. But when the judge is not convinced by the argument of the employer, the action of the employee is upheld and the employer is obliged to reinstate and pay all the salaries of late payment.

What a great opportunity this is!

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (May 25th, 2019).

May 25, 2019
Acquisitions: Is it enough just to shake hands on?

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Acquisitions and business development

The procedure of a company to acquire another of the same industry or of an industry in which it would like to expand its business, is connected to its growth.

In procedural terms this is one of the agreements “concluded” between those who have the authority to do so: The, normally, strong party (that is, the acquiring party) and the, normally, weak one (that is, the party to be acquired).

In any case, the “acquiring company” aims to its further (direct) development, utilizing the structures, the staff, the activity and the customer base of the acquired company.

The risks of an acquisition

The acquisition of a company, however attractive it may be, poses significant risks to the acquiring party, buyer. What are these risks? Legal, economic, tax risks and so on.

These exact risks the person who is interested in acquiring must explore and consider and the assess whether to proceed to the next steps.

At this point, specific consultants are, perforce, involved in order to carry out the necessary legal, financial, tax, technical audits (or, as per the international terminology: legal, financial, tax, technical due diligence).

And it is true that we have all heard of acquisitions where the entrepreneurs simply “shook hands on the deal” in the view that “everything is ok” or that they would not face serious or just unmanageable problems. Such a choice certainly could not be classified as wise as no one would want to find himself in difficult (or unmanageable) situations: If the new owner, for example, subsequently found out that a third party has initiated actions for significant amount of money against the acquired company or that there are legal actions challenging the ownership of the shares that have been transferred or that a tax audit has never been carried out in that company or that the lease of the main premises expired only a month ago …

No one, I’m sure, would want to find himself in such situations. No one would want to risk his financial position because he did not carry out audits or because the audits conducted were proved defective.

Standard audits

The various audits explore certain areas of the company’s life and activity and are intended to reduce the business risk of the acquiring party. Indicatively:

Legal audit: There are analyzed (indicatively) the data concerning the company itself, its holdings, its assets (movable, immovable, intangible), its labor relations, its legal cases, its relations with the authorities (fulfillment of its obligations linked to its activity),

Financial Audit: The company’s financial statements are audited, and the correctness of their representation is verified, the accounting books and data are checked, the potential “gray” areas are searched (and clarified), the existence (or non-existence) of financial problems is confirmed. (Or, in another, most modern version of EY Canada: “The diligence exercise probes deeply into the quality and sustainability of earnings by examining underlying risks and exploring previous financial performance to determine whether it can reasonably be expected to continue, and to understand how changing circumstances and trends may impact the future of the business”)

Tax Audit: There is an audit on tax liabilities and corresponding outstanding issues of the company

Technical Audit: All issues of technical nature related to the operation of the company are checked; it is differentiated according to its subject.

The acquisition contract

Upon the completion of the above audits, is the maximum possible assurance for the acquiring party achieved? Apparently not as the “gentlemen’s agreement” should be followed by the relevant contract, which will contain the important parameters of this agreement. Indicatively:

(a) The price and method of payment (provided, of course, that there has been the company’s value assessment)

(b) Any supplemental agreements relating to parameters for increasing, under condition, the price and / or other earnings,

(c) Shareholders’ individual rights (when the transferor remains with a minority stake in the acquired company, e.g. tag and drag along rights, management issues, a shareholder agreement beyond the company’s Statute),

(d) The obligations undertaken by the acquiring party in relation to the transferor (e.g. exemption from bank guarantees, removal of any charges/mortgage prenotations in personal property),

(e) The assurances and warranties provided by the acquired party, with regard to the data and the information provided,

(f) Penalties in the event of ex-post liabilities occurring prior to the transfer, and so on.

It is obviously NOT enough just to shake hands on!

The acquisition of a company is undoubtedly an important stop for the company itself, for the transferor and, of course, for the acquiring party. The risk that the latter assumes should be reasonable and measurable. And its safeguards should be the best possible.

Stavros Koumentakis
Senior Partner

Υ.Γ. A brief, Greek version of this article has been published in MAKEDONIA newspaper (December 2, 2018)

December 2, 2018
Companies Vs Investors / Banks: Balance Of Interests

[vc_row][vc_column][vc_column_text] The financial data of the companies, the current circumstances each time, as well as the business plans often create the need to look for funds: more often in the form of a company’s capital strengthening and / or its financing.

The Expectations of The Parties

Business interest leads to the search for “cheap” funds (in the sense of the least possible financial burden). What is important is, on the one hand for no significant commitments and collateral to be, while on the other side for the repayment period (when it comes to lending) to be long.

Investors (most commonly individuals, funds, venture capital, etc.) and, just recently banks, are always looking for

a) the maximum possible return,

b) the earliest possible return of the investment,

c) the maximum possible collateral.

Collateral

Contractual undertakings and securities (guaranties, liens on mortgage, mortgage, pledges) have lost a significant part in the value scale of investors and banks. It is no longer the basic, and certainly not the only, security they are looking for. They often require (and, as a rule, achieve) important commitments from the company – contrary to their own interests and needs. The threatened sanction in the case of breach of these commitments is a kind of penalty (in the case of investors) or the recognition of a relative reason for terminating financing and claiming immediate return (in the case of banks).

Restrictions, Commitments and Obligations

The restrictions, commitments and obligations imposed are, generally, diverse. They may concern the company, its business activities, its management and its shareholders. Access to books and close monitoring of the company’s financial data is the minimum. It is quite indicative that one may (in the view of recent experiences) refer to the need for the investor’s or, as the case may be, the (bank) creditor’s assent in cases such as the following:

(a) Approval of the business plan.

(b) The composition of the Board of Directors (with the ultimate objective of the involvement of investors’ representatives in it).

(c) The major decisions making (e.g. merger, demerger, division, interim dividend and dividend distribution, return of capital, purchase, sale, lease, rental and leasing assets, entering into significant commitments, provision of securities, and so.).

(d) Third party financing either directly (e.g. loans) or indirectly (e.g. guarantees).

(e) Amendment of core provisions of the Articles of Association.

(f) Change in equity [transfers of shares either between shareholders or to third parties, including the provision of shares to executives as incentives, for example stock option (!)].

(g) Insurance of the assets of the company and ban on the transfer of the insurance indemnity, and so on.

The Multi-functional nature of Commitments

The undertaking of obligations and commitments such as those mentioned above, operate on three levels:

(a) The investor (or the Bank, as the case may be) feels the (really necessary for them) security in order to proceed with the useful, and sometimes critical, investment or financing of the company.

(b) The company, its management and its shareholders should be ready to accept control, limitations and / or (worst case) veto rights in their significant business decisions.

(c) The company on the one hand and the investor (or, as the case may be, the Bank), on the other hand, are linked with extremely strong ties throughout their co-operation, which cannot be broken without dramatic or even extreme adverse effects.

The Enforcement of Commitments

The commitments undertaken by the company are likely to prove problematic in a dual way – especially when the terms are imposed by a bank that finances:

(a) The ability to take business decisions is transferred by the company, even partially, to (middle or senior) bankers, who are neither entrepreneurs nor have significant knowledge of the subject. Most important: they never hold a real risk for their choices, they never compromise their own personal property.

(b) The freedom of the company, its management and its shareholders are limited regarding the implementation of its plans. The company binds to the creditor bank. No significant business decision can be taken without the consent of the latter. The bank even has the (normally uncontrolled) option to block or endorse any business move and any other funding. It also has the option to finance the company’s business itself – thus gaining a dominant position among its funding sources.

The Balance of Interests

In the context of a free economy like our country’s economy, nobody is obligated to conclude a contract and / or to accept specific unfavorable contractual provisions.

In the case of searching for funds, the strong party is not, normally, the company: It will be often “drawn” into concluding contracts and to undertaking extremely problematic commitments.

It often seems, logically, utopian to talk about “balance of interests”.

There is only one thing for sure: The company shall not be “heard” when it attempts , in the near or distant future, either to discuss on the “small print” or to reproduce the assurance of its creditor (bank, fund or venture capital): “Come on, do not pay attention: these are typical – we are here for you” …

Stavros Koumentakis
Senior Partner

P.S. This article has been published in MAKEDONIA Newspaper and makthes.gr (October 14, 2018)

October 17, 2018
Company’s Capital Enhancement: Partnership With An Investor

[vc_row][vc_column][vc_column_text] An option to finance a company’s investment plans (either it is a startup or not) is its capital enhancement. When the entrepreneur has funds and chooses to invest and keep his course alone things are, generally, simple. Thus, sometimes he is forced or chooses to partner with an investor looking to his enhancement and support. The investor can be either an individual or a business venture (eg venture capital).

How An Investor “Enters” Into A Company

An investor’s entry into a corporate scheme (let’s limit it to a Société anonyme) can be made in different ways. The purchase of existing shares or the participation in the share capital increase are the most common ones. There is, in addition, the case of a bond loan convertible into shares when the lender exercises its relative right to convert its financial claim into shares.

Investor’s Participation In Capital Enhancement

In each case of an investor’s entry into the share capital of a company, some of the first issues to be clarified are:

(a) if the shareholding shall be a minority shareholding or a majority shareholding,

(b) what will the amount to be paid by him be, and

(c) what will be the percentage of the share capital to which his participation shall correspond.

Please note that some percentages of the share capital are assessed as critical for the operation of a Société anonyme, with the clarification that when we refer to majority shareholding as a mean of participation, we may face the issue of the company’s acquisition. Additionally, the investor will always aim to an increased number of shares, while the entrepreneur to the less possible. From the legal perspective, there are always the appropriate tools to implement the object of the (participation) agreement.

Common Objective And Investor’s Assurance

The main reason for any investment (either of a high or of a low risk) is earning business profits.

The profit (: common objective) is interwoven, among other things, with the successful implementation of the business plan, which has been agreed between the entrepreneur and the investor. It also corresponds to the percentage of the share capital each one of them holds as well as to the policy for the distribution of profits.

The investor always claims, in order to safeguard his interests:

(a) close and multilevel monitoring of the operation of the company (including the legal and financial aspects of the company’s operation),

(b) participation in the administration and formulation of the (company’s) strategy,

(c) a veto right in critical decisions,

(d) shareholders’ commitments (e.g. limitation or prohibition of the transfer of shares) and so on.

Exit strategy

The investor often seeks a binding agreement with regard to earning his profit and to withdrawing from the investment. This agreement (also known as the “exit strategy”) includes, among other things, the time, the conditions and the amount the investor expects to receive at the time of withdrawal.

Contractual Framework

For the success of such a venture, it is necessary to have secure contractual commitments, an extraterrestrial shareholder agreement and / or statutory amendments. A crucial parameter for the success of the whole venture is always the detailed and accurate recording of everything that has been agreed, the rights and obligations of each party. In any case, it is desirable that the parties involved do not appeal to third parties for the interpretation and implementation of the agreements, at any time in the future.

Stavros Koumentakis
Senior Partner

P.S. This article has been published in Greek in MAKEDONIA Newspaper and portal makthes.gr (October 9, 2018)

October 9, 2018

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