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How are labor relations regulated when the founder and the director are the same person?
How are labor relations regulated when the founder and the director are the same person?
In most cases, the founder and the director of a legal entity are different people, and their relationship is regulated by an employment contract and other legal requirements. However, in some cases, the founder and the director may be the same person. So, how should the employment relationship be regulated in such cases? Can an employment contract be signed with the director?
Expert Ramin Hajiyev clarifies the issue:
On February 19, 2025, during a plenary session of the Constitutional Court of the Republic of Azerbaijan, the constitutional case regarding the interpretation of parts 2-3.3 of Article 7 of the Labor Code in connection with Articles 49, 91, 91-2.1, and 91-2.3 of the Civil Code was examined, and the following decision was made:
- Based on Articles 15 and 59 of the Constitution of the Republic of Azerbaijan, as well as Articles 49, 91, 91-2.1, and 91-2.3 of the Civil Code of the Republic of Azerbaijan, and part 2-3.3 of Article 7 of the Labor Code of the Republic of Azerbaijan, the relations between the legal entity and its management body are generally of a civil-legal nature and are regulated by the relevant provisions of civil legislation. However, in order to protect the labor and social rights of the head of the executive body of the legal entity, who is in actual employment relations with the legal entity’s founder, an employment contract must be formalized between the founder and the head of the executive body.
- According to Article 389 of the Civil Code of the Republic of Azerbaijan and part 5 of Article 3 of the Labor Code, the concept of a contract implies a mutual expression of will by two or more parties. Therefore, when the founder and the head of the executive body of a legal entity are the same person, no contractual relationship arises, and the appointment of that person as the head of the executive body must be formalized by a relevant decision.
As can be seen from the decision, when the founder and the head of the executive body (legal representative) of a legal entity are different individuals, the employment relationship between the parties should be formalized by an employment contract to protect the labor and social rights of the head of the executive body.
The other case refers to the procedure for formalizing the relationship when the founder and the head of the executive body are the same person. According to the requirements in the decision, when the founder and the head of the executive body (director, CEO) of a legal entity are the same person, their appointment to this position is formalized by a relevant decision without the need for an employment contract.
According to part 2 of Article 7 of the Labor Code, except for the cases specified in parts 2-1 and 2-2 of this article, employment relationships are concluded in the form of an electronic document in the electronic information system. For the process of concluding an electronic employment contract between the founder of the legal entity and the head of the executive body in the EMAS system, the founder must first be given usage rights. For this, the identity card details are entered in the "User Rights" section of the EMAS system under the "Granting User Rights" part. After that, the employment contract is concluded, and at the end, the authorized person to sign the employment contract is selected as the founder, and the process is finalized.
It should be noted that this decision of the Constitutional Court has been in force since the date of publication, March 5, 2025.
In most cases, the founder and the director of a legal entity are different people, and their relationship is regulated by an employment contract and other legal requirements. However, in some cases, the founder and the director may be the same person. So, how should the employment relationship be regulated in such cases? Can an employment contract be signed with the director?
Expert Ramin Hajiyev clarifies the issue:
On February 19, 2025, during a plenary session of the Constitutional Court of the Republic of Azerbaijan, the constitutional case regarding the interpretation of parts 2-3.3 of Article 7 of the Labor Code in connection with Articles 49, 91, 91-2.1, and 91-2.3 of the Civil Code was examined, and the following decision was made:
- Based on Articles 15 and 59 of the Constitution of the Republic of Azerbaijan, as well as Articles 49, 91, 91-2.1, and 91-2.3 of the Civil Code of the Republic of Azerbaijan, and part 2-3.3 of Article 7 of the Labor Code of the Republic of Azerbaijan, the relations between the legal entity and its management body are generally of a civil-legal nature and are regulated by the relevant provisions of civil legislation. However, in order to protect the labor and social rights of the head of the executive body of the legal entity, who is in actual employment relations with the legal entity’s founder, an employment contract must be formalized between the founder and the head of the executive body.
- According to Article 389 of the Civil Code of the Republic of Azerbaijan and part 5 of Article 3 of the Labor Code, the concept of a contract implies a mutual expression of will by two or more parties. Therefore, when the founder and the head of the executive body of a legal entity are the same person, no contractual relationship arises, and the appointment of that person as the head of the executive body must be formalized by a relevant decision.
As can be seen from the decision, when the founder and the head of the executive body (legal representative) of a legal entity are different individuals, the employment relationship between the parties should be formalized by an employment contract to protect the labor and social rights of the head of the executive body.
The other case refers to the procedure for formalizing the relationship when the founder and the head of the executive body are the same person. According to the requirements in the decision, when the founder and the head of the executive body (director, CEO) of a legal entity are the same person, their appointment to this position is formalized by a relevant decision without the need for an employment contract.
According to part 2 of Article 7 of the Labor Code, except for the cases specified in parts 2-1 and 2-2 of this article, employment relationships are concluded in the form of an electronic document in the electronic information system. For the process of concluding an electronic employment contract between the founder of the legal entity and the head of the executive body in the EMAS system, the founder must first be given usage rights. For this, the identity card details are entered in the "User Rights" section of the EMAS system under the "Granting User Rights" part. After that, the employment contract is concluded, and at the end, the authorized person to sign the employment contract is selected as the founder, and the process is finalized.
It should be noted that this decision of the Constitutional Court has been in force since the date of publication, March 5, 2025.