Legal aspects of the management contract
A management contract is a very specific form of employment. As a rule, it is addressed to the persons managing the enterprise or possibly senior management. If we have received a job offer on its terms or are carrying the intention of employing an external manager in our company, we should know a lot about this specific contract.
The term “employment” used at the beginning of the article can be misleading. The managerial contract is not an employment contract but a civil law contract, which is the closest to the mandate contract. The parties to such an agreement are the enterprise management board and the manager (manager). The first of them – undertakes to pay remuneration for the “work” rendered, while the other party – to manage the enterprise.
The snag is that it is hard to find any regulations on this type of legal relationship in the Civil Code. In legal literature and court rulings, it is assumed that such a contract is one of unnamed contracts concluded under the freedom of contract, to which only the mandatory provisions of the Civil Code will apply.
As you can see, the content of such a contract, including the rights and obligations of the parties, for the most part will depend on the will of the parties. They must independently regulate, in particular, issues such as: the subject of the contract, the manager’s duties and rights, components of his remuneration, scope of responsibility for the performance of tasks or goals, criteria for assessing the effectiveness of their implementation, the possibility and procedure of termination of the contract, and finally the prohibition of competitive activity and conditions regarding business secrets.
Diligent performance contracts
The management contract belongs to the so-called diligent performance contracts. This means that the manager has the duty to perform the tasks entrusted to him in the best possible way, which ultimately may not lead to the achievement of a specific result, and he will still receive the agreed remuneration.
It should be assumed that the goal of concluding such an agreement is to achieve good condition of the managed company. There are many paths to this broadly understood goal and the role of an efficient manager is revealed in their proper use. Unlike employment, there is no subordination here. The manager has great freedom of action. It is up to him to choose how to manage the business.
Civil liability insurance
There is great responsibility behind great freedom of action. The manager, as a rule, responds on general principles, i.e. with all his property and without a limit specified in amounts. Therefore, at the stage of concluding the contract, the parties’ interests in this respect should be properly secured. A good solution would be to conclude a civil liability insurance contract for business management. On the one hand, this will secure any claims of the injured entrepreneur, while on the other, he will ensure peace for the manager of bad credit loans.
In connection with the inability to accurately determine the time of the manager’s start and end of work (he does not tear off the pen in the middle of the sentence at 4pm), as well as such factors as: lack of control of “work time”, the need to perform activities outside the normal rhythm of the enterprise (business meetings , business negotiations, etc.), whether the dependence of managerial duties on changing circumstances and conditions (responding to emerging problems) is the manager’s working time is not standard. It can be simplified that the manager works 24 hours a day. The manager is also not subject to legal regulations regarding holidays (he has no right to paid annual leave specified in the provisions of the Labor Code). Of course, such issues can be included in the content of the contract, providing for e.g. a paid break in performance of duties.
The management contract also does not apply to code employment guarantees. The manager must take into account that he can receive termination of the contract at any time.
Fixed base and bonuses
Manager’s remuneration is not subject to the regulations regarding minimum remuneration for work, however, let’s assume that it is not a problem that managers’ earnings usually exceed this limit significantly. In practice, managers’ remuneration consists of several components, e.g. a fixed base and bonuses inextricably linked to the company’s financial results. Manager’s income is taxed on general principles as income from activities carried out in person (Article 13 (9) of the Personal Income Tax Act).
In summary, a management contract is not for everyone. This form of work will be suitable for dynamic and independent people. It requires tremendous self-discipline and, due to interdisciplinary responsibilities, also experience and appropriate know-how. From the entrepreneur’s point of view, due to the lack of statutory restrictions, it seems to be a tempting alternative to employing a manager under an employment contract.