Recruiting a manager: what are the biggest mistakes and what has changed since the New Year?
The recruitment of a CEO is a key element of an organisation's activities, requiring not only legal clarity but also a clear division of responsibilities. The manager of a legal entity is responsible for the day-to-day running of the company and his/her decisions have a direct impact on the success and reputation of the organisation. However, in practice, according to lawyers, there are often situations where the employment of a manager teeters on the brink of illegal employment.
Why this happens, what mistakes are made and how to avoid legal violations in this situation and how to properly organise the recruitment of a manager - answers AVOCAD Managing Partner, attorney-at-law Egidijus Langys.
The CEO is appointed by the company's board of directors or, if there is no board of directors, by the general meeting of shareholders. This body also approves the manager's remuneration, the job description and decides on bonuses or disciplinary action.
The Labour Code stipulates that a manager must have an employment contract, except for exceptions provided for by law. "This means that a manager's activity in a company without a properly concluded employment contract may be considered illegal employment," points out Langys.
While these requirements are clear, in practice companies often face situations where non-compliance leads to legal and financial consequences.
According to the lawyer, it is not uncommon for company managers not to be given employment contracts on the grounds that they are appointed by the shareholders, or not to be informed of their employment. This omission also leads to illegal employment, which has a number of negative consequences for companies.
The lawyer notes that a common mistake is the incorrect submission of information to Sodra. Failure to notify the manager's employment or late notification can not only lead to fines, but also hinder the provision of social security benefits to the manager. If the company's HR department fails to notice that the manager's employment contract must be registered in the Sodra system before the start of his/her employment. This exposes the company to administrative fines and the manager to temporary loss of insurance cover.
As of 1 January 2025, the Labour Code changes to provide that the conclusion of an employment contract and the recruitment of the head of a legal person must be notified to the territorial division of the State Social Insurance Fund Board at least one hour before the scheduled start of work.
"It is likely that this provision will not raise any questions about the proper recruitment of a manager, and that the amendment will be a help and a reminder to the company's accountants or HR representatives who perform the company's recruitment functions," notes AVOCAD's lawyer.