Classification challenges: analyzing the administrator - company relationship in the context of Albanian legislation

In the Albanian market, the legal representatives, commonly referred to as administrators, play a crucial role in managing and representing commercial companies. However, while their powers and duties are well-defined, there are certain ambiguities surrounding the type of the legal relationship that they establish with the company/employer; in practice, administrators are viewed as glorified employees whose duties are regulated, in the majority of cases, by the same type of employment contracts as those of the rest of the employees. Determining whether this relationship qualifies as employment or service, however, has significant implications, particularly concerning the obligations in the event of contract termination (e.g., severance payments, other payments due), non-compliance with notice periods and administrators' freedom in performing their duties.

Supreme Court’s standpoint regarding the classification of the administrator – company legal relationship

In Albania, in the absence of a detailed regulation in this regard, companies primarily lean towards regulating their relationship with their administrator(s) through a standard employment contract.

Law 9901/2008 “On entrepreneurs and commercial companies” as amended, (the “Commercial Law”), provides, inter alia, that companies shall be represented in their interactions with third parties by their legal representative(s), who shall act according to the Commercial Law and the company’s Articles of Association with the primary objective of safeguarding the company's economic well-being and ensuring its continuous operations, without however providing any indication as to the legal nature of the relationship with the company. Further, the Labor Code provides that “the activities that are limited only to the exercise of the duties as an advisor or a member of the administration body of a legal entity in the form of a company, solely involving the execution of obligations arising from this task, are excluded from the scope of the Labor Code”.

Hence, the question that arises in this case is whether the legal relationship between the administrator and the company/employer falls under the classification of an employment contract or rather fits into the framework of a service relationship, wherein the administrator operates as an independent contractor.

This query has arisen on multiple occasions over the past years and has been brought before the Supreme Court of Albania. In its rulings, the latter has consistently addressed the classification of the administrator-company relationship as a service agreement. For instance, the Civil College of the Supreme Court in its decision dated 10.03.2021, claimed that: "The administrator, as a legal representative of the company, cannot be subject to the provisions of the Labor Code. The relationship that arises between the administrator and the company has the characteristics of a special relationship, which is regulated both by the Commercial Law, but also by the special provisions of the Civil Code. The Law itself positions the administrator as a special body, which has powers that in legal logic exceed a simple employment relationship. Hence, in the conflict that is the subject of the trial, there is no reason to investigate and analyze the implementation of the procedures for the resolution of the employment relationship provided by the Labor Code.”

In another decision of the Civil College of the Supreme Court dated 19.05.2021, it was stated that: "The relationship administrator - company, is a special relationship, which is regulated both by the Commercial Law, but also by special provisions of the Civil Code”.

Furthermore, in the decision dated 29.04.2022, the Civil College of the Supreme Court when referring to the contractual relationship administrator-company, and more specifically to the non-compete clause, analyzed such clause as purely regulated by the Commercial Law.

In a more recent decision dated 12.12.2022, the Civil College of the Supreme Court argued the following: “The legal relationship of the administrator with the company is not an employment relationship but a representation relationship, where for the service performed, the administrator is paid with a reward determined by the governing bodies of the company, different from the notion of salary defined by the Labor Code, as one of the determining elements of the nature of this relationship. Therefore, the activity of the administrator in the company, when it contains the fulfillment of obligations exclusively related to such activity, is excluded from the scope of the Labor Code.” This interpretation suggests that when the administrator is carrying out their duties solely to fulfill their statutory obligations as regulated by the Commercial Law and not additional duties similar to those of the rest of the employees that pertain to the normal business of the company, the established legal relationship does not fall under the category of an employment relationship as defined by the Labor Code. Instead, it falls under a service and representation relationship, which is regulated by the Civil Code and the Commercial Law.

Foreign nationals serving as administrators

The current common practice is to consider the administrator as an employee of the company and hence regulate its relationship with the company through a standard employment contract. Consequently, if the administrator is a foreign national, in order to carry out their duties as an administrator under an employment contract in Albania, they would be required to obtain a single permit for working purposes under Law 79/2021 "On Foreigners," as amended (the "Law on Foreigners"),

However, in case that the performance of the responsibilities pertaining to a foreign administrator is regulated by means of a service agreement based on which he/she provides services to an Albanian entity, the administrator is required to be duly registered as a natural person either in Albania or abroad with the respective Commercial Register. In this case, they are required to obtain a single permit as a self-employed individual. Following the recent changes of the Law on Foreigners, the above permit is granted to individuals who can substantiate their economic interest in engaging in the proposed activity, demonstrate the anticipated positive impact on the economy, and prove possession of sufficient capital to execute their business idea. This proof typically involves a bank statement indicating that the administrator possesses adequate funds in an Albanian or foreign bank. However, the requirement to demonstrate the feasibility of the business idea and its alignment with a specific capital amount can pose challenges, particularly considering the nature of the services offered by the administrator.

Considering that the single permit is a relatively new practice in Albania, it remains unclear how the requirements pertaining to such permit will apply to foreign administrators and whether these demanding requirements shall discourage companies from contracting the administrators under a service agreement, as per the jurisprudence of the Supreme Court.

Termination procedures: employment contracts and service contracts

On what concerns the termination of the relationship between the administrator and a company in Albania, the Commercial Law stipulates that the General Assembly holds the authority to dismiss the administrator at any time by a simple majority, on condition that they are present at the meeting the shareholders representing at least 30% of the voting shares of the company. Such relatively relaxed dismissal procedure compared to the employment contract termination, is better harmonized with the provisions outlined in a service agreement, wherein termination can occur for convenience, contractual breaches, or any other stipulations leading to the termination of the contractual relationship. Such termination can take place immediately or within the contractual deadlines established by the parties.

In contrast, the termination of the administrator’s relationship with the company when structured as an employment arrangement is meticulously regulated by the Labor Code and is subject to the observance by the employer/company of a clearly defined procedure and the existence of one of the termination grounds that are listed in an exhaustive manner in the Labour Code.

Final thoughts

The relationship between the administrator and the company, appears to be in a grey area which is not specifically regulated by the Albanian legislation. According to the recent court practice, when the administrator is hired solely for representation purposes i.e., manage company’s business, representing the company etc., without engaging in any other obligations outside the scope of the administrator’s duty, such relationship is considered to qualify as a service relationship. However, the classification becomes uncertain by leaving space for interpretation when the administrator performs other duties, such as those pertaining to the normal business activity of the company, in addition to that of the legal representative of a company.

Although the parties often tend to treat the legal qualification of the relationship between the company and its administrator as a matter of choice in selecting the contractual framework, rather than a matter determined by the legal requirements and the Supreme Court’s practice, in practice, there is a risk of reclassification of the contract. This may occur if the court determines that the administrator's work includes common business activities under a service contract, leading to the reclassification as an employment relationship. Alternatively, if the administrator does not engage in any business-related tasks under an employment contract, the relationship between the parties may be reclassified as a service relationship.

In order to avoid the above uncertainties, a unifying decision of the Supreme Court would be of an added value solution on the matter as it would change the practice and impose an obligation to the companies to follow it, and as a result it would avoid many legal problems in the future for companies to define such crucial relationship. Another solution would be the introduction of changes to the Commercial Law subjecting the administrator to the provisions of the latter and that of the Civil Code.