Employment contract legal protection insurance

Insurance for boards members' contract disputes

Employment contract legal protection insurance is a valuable layer of protection for managing directors, board members and supervisory board members in the event they are dismissed from their position.

When board members have their contract terminated, they do not enjoy the same rights as regular, rank and file employees. Often, legal disputes arise over severance pay, bonuses or pension payments. Legal expenses insurance for employment contracts covers disputes over the interpretation of contract content. It is designed to pay legal fees for experienced lawyers from the Howden hendricks lawyer network.

Cover also includes a litigation guarantee, which is a type of title insurance policy that facilities prompt payment by the other side (this element of the coverage only activates if the lawyer involved signals sufficient prospects of success in the proceedings).

If you perform several managing director activities, all governed by one contract, the insurance policy automatically covers all these activities.

Do I need standalone employment contract protection insurance?

‘Classic’ or ‘family’ standard market professional legal protection insurance would not cover board members’ employment contract disputes. In the fine print of such policies, providers typically exclude disputes about management contracts. This is because managing directors and board members’ high level of responsibility means a risk of extremely high cost liability claims, far beyond the scope of the underwriting model of the usual family legal protection cover.

For managing directors and board members of corporate bodies and representatives of legal entities such as a GmbH or AG, employment contract protection insurance plays an important role in successfully negotiating your exit from the company.

When do I need employment contract legal protection insurance?

There are many scenarios where a board member may be kicked out of the door, overnight:

• Investigations by the public prosecutor
• Criminal investigations
• Changes in the shareholder structure
• Changes in the legal entity (merger, acquisition, company transformation, spin-off)
• Changes in roles and responsibility 
• Consequences of poor decision-making
• Differences of opinion about the future direction of the company.  

All of these situations can result in immediate termination of your contract. In such situations, managers need a good lawyer and an employment contract legal protection policy.

What if they don’t pay? How long does the coverage last?

In principle, the insurance cover remains in force after termination of the contract until all benefits under it have been settled - including pension commitments.

Also included are public relations advice in the event of threatened damage to reputation, continuity if a prior contract is presented, and automatic follow-up notification periods of three years, or five years in the event of retirement.

In the event of a change of employment, the insurance coverage continues seamlessly.