Worker-Directors: Compatibility and Legal Consequences

In small and medium-sized enterprises (SMEs), it is common for a worker to also take on management duties. This article analyses the compatibility between the two roles, the legal consequences of combining functions, the social security framework, and the differences between the positions of director and worker.

Directors are elected by the general assembly to manage and represent a public limited company (SA), making strategic decisions and ensuring the fulfilment of corporate objectives.

Incompatibility Between the Roles

Article 398(1) of the Commercial Companies Code (CSC) prohibits someone from simultaneously exercising the roles of director and worker in the same company or in companies within the same group.

• Director: exercises management power and represents the company.

• Worker: is subject to orders, under legal subordination.
  As Paulo Tarso states, "A director cannot give orders on Mondays, Wednesdays, and Fridays and take orders on Tuesdays, Thursdays, and Saturdays." The essence of the incompatibility lies in the impossibility of self-subordination

Appointment of a Worker as Director

The appointment of a worker to the position of director of a commercial company carries specific implications for their employment contract, as set out in Article 398(2) of the Commercial Companies Code (CSC).

Legal Framework and Jurisprudential Evolution

Originally, Article 398(2) of the CSC established a distinction based on the length of the employment contract:

• Contracts less than one year old: Appointment as director resulted in the automatic termination of the employment contract.

• Contracts over one year old: The contract was suspended during the period of holding the office of director. However, the Constitutional Court, through Ruling no. 723/18, declared the rule providing for automatic termination of contracts with less than one year of seniority unconstitutional, due to a violation of fundamental labour rights.

Current Legal Framework (Since 27 January 2020)

As a result of the Constitutional Court's decision, the current regime in force since 27 January 2020 establishes that all employment contracts are suspended during the period in which the worker holds the position of director, regardless of the length of the contract. This jurisprudential change represents a significant step forward in the protection of labour rights, by preventing the termination of the employment relationship due to appointment as a director and ensuring the continuity of the employment relationship after the directorship ends.

Social Security Regime

Appointment as a director changes the contributory framework:

• More than one year of seniority: remains under the general employee regime.
• Less than one year: falls under the regime for statutory body members (MOE).

Key Differences Between Director and Worker

1.Dismissal vs. Termination

• Director: can be dismissed at any time, without just cause.
• Worker: can only be dismissed with just cause or for legally established reasons and subject to formalities.

2. Termination Compensation

• Director: compensation is fully taxable.
• Worker: partial exemption, up to certain limits defined in the Personal Income Tax Code (IRS).

3. Unemployment Benefits

• Director: limited access, subject to involuntary termination for objective reasons (e.g., insolvency).
• Worker: broader access, provided the job loss is involuntary.

Final Considerations

The issue of “worker-directors” is complex and requires careful analysis of legal provisions and jurisprudence. The incompatibility between the roles of director and worker aims to protect the company’s interests and prevent conflicts of interest. The suspension of the employment contract, rather than its termination, represents progress in the protection of workers' rights. It is essential that companies and legal professionals remain attentive to the nuances of this regime to ensure legal compliance and the protection of the rights of all parties involved.