Written by Cyrielle Agut
Employment and tax lawyer
1. The relationship between a company and members of the board of directors holding senior management positions is governed by commercial law, not employment law.
The Supreme Court has addressed the nature of the relationship between a company and its board of directors members on several occasions, specifically as to whether it should be classified as commercial or employment in nature.
The Labour Chamber of the Supreme Court, in its ruling of 28 September 2017, appeal 3341/2015, provides a key distinction between the two types of relationship.
Specifically, it is true that members of a company's governing body may simultaneously hold an employment relationship with that company — but only where they carry out ORDINARY or STANDARD work. This could be the case of a director who has an employment contract with the company to perform services in the role of section head or section manager, since the duties associated with that role are understood to arise from a standard employment relationship.
Where the same individual simultaneously holds a board position and carries out senior management functions — as would be the case of a General Manager or Chief Executive — the relationship must be regarded as commercial in nature. In such cases, the dual role has a single purpose: the management and administration of the company, which falls squarely within the scope of the director or board member's remit.
Following the same line of case law, the First Chamber of this Court, in the ruling of 21 April 2005 cited above, held that «when board members take on the functions of a managing director, since these two functions are not distinguished under Spanish law, it must be concluded that the former absorb those of the management role, which, consequently, shall be deemed commercial in nature» (Legal Ground Three).
2. An employment relationship may be reinstated provided there is an express agreement between the employee and the company.
As an exception to point 1 above, a situation may arise in which an employment relationship is reactivated — as established by case law concerning Senior Executives and the company — provided there is an express agreement between both parties recognising the relationship as one of employment.
Specifically, the Supreme Court, Labour Chamber, First Section, judgment of 24 May 2011, appeal 1427/2010, served to refine the case law establishing that, in situations where an individual simultaneously performs functions as a member of the company's board of directors and as a senior executive or manager of the company, what determined whether the relationship was to be classified as commercial or as one of employment was not only the content of the functions performed, but also the nature of the legal bond.
In the case of this ruling, the relationship between the Senior Executive and the company was initially an employment relationship, established through an employment contract governed by the special employment regime for senior executives. This senior executive contract was terminated at the point when the Senior Executive joined the board of directors. Several years later, he ceased to act as a director, bringing the commercial relationship as a board member to an end — leaving open the possibility of resuming the prior special employment relationship, provided the parties had contractually made provision for this.
3. Legal grounds for recognising the relationship as commercial in nature.
The exclusion of an employment classification in respect of shareholders and board members who carry out tasks beyond those inherent to their role as shareholder may arise from the absence of the element of "alienness" (ajenidad) — a defining feature of employment under Spanish law — where the shareholder or board member holds a controlling stake in the company or exercises decisive powers of decision-making, management and administration, such that any work performed will always be directed towards the success of that company.
Furthermore, the absence of subordination is also relevant where the individuals concerned form part of the company's highest governing body.
The actions of those who make up the company's management body involve the discharge of duties that are inherent to the role of company director, and fall squarely within the exercise of the position of board member or member of the corporate management bodies.
This is reflected in the position of the Supreme Court, Social Chamber, in its various judgments of 21 January, 13 May, 3 June and 18 June 1991 (appeal no. 1368/1991) and 11 March 1994 (appeal no. 1318/1993), which consistently establish that, in cases where an individual simultaneously carries out functions on the board of directors and acts as senior manager or managing director of the company, what determines whether the relationship is classified as commercial or employment in nature is not the content of the functions performed, but the nature of the legal bond itself.
Accordingly, where there is a relationship of organic integration within the company's governance structure — whereby the relevant powers are exercised either directly or through internal delegation — the relationship is not one of employment, but of a commercial nature.
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