Directors service agreement (employment contract)

About this document

Today a company is under a statutory obligation to provide written terms of employment to a director, as to any other employee.

It is advantageous to both sides to set down the package in an employment contract (for directors, traditionally known as a service agreement), rather than in just a few words from the company.

This agreement provides a complete legal and practical framework for any executive director. It covers all the requirements for an employment contract of a board member as well as clarifying the relationship between the company and the director so as to prevent conflicts of interest.

The service contract is particularly strong on the protection of confidentiality and company secrets.

The agreement is flexible and can be used whether:

• the term of employment is fixed or running
• the organisation is a company, charity or NGO (in the case of the latter two, the employee will be director level equivalent)

All common perquisites such as salary and benefits are also covered.

Use of plain English makes editing easy and allows it to be understood by all parties.

This document provides a balance between protection for the director and for the company. If there is a difference in interests, we have favoured the company. Some of these provisions are required to comply with the law.

The explanatory notes, which come with these documents, will guide you as to the importance of specific issues.

Recent changes in employment law affecting this contract

Employment law changes regularly, necessitating regular updates to our documents.

Account has been taken in this contract of:

• the employment rights of executive directors are the same as other employees, but there is an additional need to regulate the relationship between the director and the organisation
• removal of an opt-out to the right to receive a redundancy payment
• removal of a retirement age clause
• government recommendations that companies follow disciplinary procedures recommended by ACAS

When to use this contract

It is appropriate for any director (including a Managing Director, CEO, CFO or Chairman) of any company, whether employed full time or part time.

It can also be used for charities and NGOs where the level of senior management is equivalent to the directors of a company

We also have other service contracts for non-executive directors and unpaid directors.

This contract does not include vesting provisions. We believe that agreements relating to company ownership are best managed separately from agreements relating to employment. If you want to grant share options to a director as an incentive or as compensation for lower pay, supplement this contract with an option agreement such as this one.

Features and contents

• Protects the board from criticism
• Protects the company from claims both before an Industrial Tribunal and in court
• Protects the director from unreasonable demands
• Up to date with the latest changes in company law
• Provides a "shopping list" of possible director perquisites
• Helps the company to comply with employment regulations
• Includes principal provisions of the Employment Act 2002
• Follows current best practice recommendations by ACAS and other bodies
• All standard terms for a principal statement (provision of which is a legal requirement)
• Strong on protection of employer's confidential information
• Structured so as to minimise the administrative burden of legal compliance

The document comprises 30 paragraphs and a schedule:

• Start and continuity
• Job title and description
• Place and hours of work
• Work outside the UK
• Salary
• Expenses
• Leave for holidays and other reasons
• Sickness or other absence
• Pension
• Health insurance
• Liability insurance
• Company car
• Director's responsibilities
• Other business and employment
• No competition
• Confidentiality
• Intellectual property
• Staff handbook and company policies
• Bribery and other corrupt behaviour
• Garden leave
• Disciplinary and grievance procedures: in line with ACAS recommendations
• Termination (of employment or fixed term)
• Arrangements during notice period
• Procedure after termination
• Summary termination
• Reconstruction or amalgamation
• Data protection
• Severance and invalidity
• Schedule: Bonus system