In Luxembourg, there is no clear legal restriction, for the same person, to be the legal representative of a company (e.g. being a director, manager or responsible for the day-to-day management) and to be considered an employee within the same company.

Nevertheless, the fact for a director or a manager of a company to have an employee position within the same company, may be challenged in certain cases, among which the most common will be:

1. i) the director or manager will file a claim for abusive dismissal or claim for salary arrears in front of the Labour Court. The company will challenge the jurisdiction of the Labour Court by arguing that the person was not an actual employee of the company.
2. ii) the company in which the person is acting as a director or manager has been declared bankrupt. The person will file a declaration of debt (déclaration de créance) within the bankruptcy, in order to receive certain benefits (unpaid salaries, indemnity due to the bankruptcy) covered by the Luxembourg Employment Fund (Fonds pour l’Emploi). The Luxembourg Employment Fund will challenge the employee position of that person and, thus, refusing the payment of any benefits.

Luxembourg Case law has clarified in which conditions it is possible to be both at the same time.

The main condition for any employment agreement (whether for a manager or any other person within the company) is the link of subordination, which is characterized by the performance of a work task under the authority of an employer who has the power to give orders and directives, to monitor the performance and to sanction the failures of an employee if required.

The existence of a link of subordination does not, however, require the employer to exercise a close and permanent direction over the employee, but it is sufficient that the employer has the right to give instructions to the employee for the organisation and performance of the agreed work and that he has effectively made use of that right.

As a result, the condition for a manager or a director of a company to be considered as an employee at the same time, requires:

1. the real exercise of a task within the company that is separated from the function of manager/director and

2. a link of subordination relationship within the company, in the framework of the exercise of this separate task.

 Managing Partner and employee?

The Managing Partner of a company (who was also an indirect shareholder of the company for approximately 50%) was claiming before Court that he was also to be considered as an employee of that same company.

The Luxembourg Court of Appeal held that the mere existence of a written employment contract, the existence of monthly payslips, the monthly payment of a gross salary (meaning the company did not withhold tax and social security as this is required for the employer)  or even the registration with the Luxembourg social security are not sufficient on their own to prove the real nature of an employment relation (Court of Appeal 2 February 2017 n°41891). The Court of Appeal also noticed that the employment agreement did not give any indication on the tasks to be performed by the claimant or the days or hours the employee was supposed to work.

Manager, 50% shareholder and employee?

The Luxembourg Administrative Tribunal ruled recently on a case filed by the manager of a private limited liability company (SARL) who was also a 50% partner and who considered himself to be also an employee of the company (Tribunal Administratif, 2 December 2020, n°44008).

The fact that 50% of the shares of the company were owned by another partner was not considered as enough by the court to prove that the manager-employee was working under the order of that other partner.

The Court held that, in case a person holds 50% of the shares of a company, this person can block all decisions to be taken by the general meeting of shareholders, including the decision by which the shareholders vote on the discharge to be given to the manager of the company, giving him, therefore, a significant control over the activities of the company (this point seems arguable however, as the 50% shareholder of the company, unlike a majority shareholder, is also not able to decide alone upon the discharge to be given to the managers of the company. Additionally there seems to be no direct correlation between the absence of discharge (ie the possibility for the company to hold the managers liable) and the link of subordination).

Day-to-day manager and employee?

The Administrative Court (Tribunal Administratif) ruled on a case where a person, who was a director of a company (along with 2 other directors) and responsible for the day-to-day management claimed for benefits after the company was declared bankrupt (Tribunal Administratif 6 January 2021 n°43359). The person was also in possession of an employment agreement with the position of “General Director” of the company.

The Luxembourg Employment Fund rejected this request by arguing that he:

• was registered with social security as trader/craftsman (commerçant/artisan),
• was holding the business license of the company
• was a shareholder of the company
• was responsible for the day-to-day management of the company

The person argued in Court that he should be considered as an employee given the fac that:

• he was only a minority shareholder of the company (only 2% of the share capital)
• he was not the only decision taker of the company (considering there were 2 other directors)
• he received a monthly payslip
• the payslip mentioned his monthly working days and hours

The Administrative Court confirmed his position as an employee by confirming that:

• he did not have the power to take decisions within the company (The decisions had to be taken by at least two directors)
• he was indeed a minority shareholder and, therefore, as a director, his mandate could be terminated at any time by the majority shareholder with immediate effect
• the mere fact that a person is registered with social security as trader/craftsman and is holding the business license of the company does not exclude a link of subordination.

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As a conclusion, it seems that the most important factors that will be considered by a Luxembourg Court to confirm whether or not the person responsible for the management of the company can also be considered an employee are:

• link of subordination (the person should not have the sole power of decision with the company, but he/she should also not be a majority shareholder or partner holding 50% or more of the corporate capital of the company)
• performance of separate tasks as an employee (this should also ideally be described in the employment agreement with a task description and precise working hours).