Key Issues in a Director Service Agreement
It is important to distinguish a Director Service Agreement from a Contract for Services. Some directors are self-employed, especially non-executive directors, and other will be employees. For the latter, a Director Service Agreement will be appropriate.
A contract for a Director will still need to incorporate the usual elements of an employment contract, such as holidays and place of work, should also refer to policies and procedures such as discipline and grievance, which do not form part of the contract, and the terms detailed below are generally those that require more thought or are not included in contracts of employment for staff who are not directors.
- notice periods from either party to terminate the agreement;
- duties of the director including description of role and limits on authority and possibly including reference to statutory duties under the Companies Act 2006 and any additional duties
- potential restrictions on whether the director can work or have any involvement with other organisations, and a clear process for obtaining prior approval if potentially allowed by the company. In this regard care should be taken to consider proportionality and the risk of unlawful restraint of trade;
- remuneration details- salary plus potential benefits which may include bonus schemes, share options, medical insurance, life and disability insurance, pensions, company car and / or other benefits. Consider whether any elements need to be discretionary and whether the company should retain some right to review, amend or withdraw benefit and ion what circumstances;
- whether the director should be indemnified against any liabilities and if so, in what circumstances
- Potentially specific reference to policies and procedures including internet and social media usage and Bribery and anti-corruption policies
- Possible reference to the company’s articles of association where relevant to critical issues as to the running of the company
- Performance evaluation criteria
- whether the company will pay for Directors and Officers Insurance
- details of reimbursement and authorisation for expenses;
- the right for the company to require the director to undergo a reasonable medical examination and for the reports from such examinations to be disclosed to and discussed with the company. It should be remembered however, that whilst a contractual agreement to co-operate is useful for the company as employer, in practice, care should be taken in any such situation since the ability of the company to force the issue is another matter and would create considerable legal risks and uncertainties.
- confidentiality clause
- ownership of intellectual property and appropriate procedures to protect intellectual property
- circumstances under which the service agreement may be terminated by the company without notice;
- restrictive covenants applying to the director after leaving the company including working for competitors, competing with the company, soliciting or dealing with company clients and poaching senior members of staff – care is needed with restrictive covenant clause so that the clause is proportionate and not a blanket geographical clause or which may be unnecessarily too long in terms of time limit.
- issues arising on termination such as pay in lieu of notice, gardening leave and the return of company property;
- severability – the contract should expressly state that if a clause or part of a clause is held to be unlawful or unreasonable by a court, this will not invalidate other aspects of the clause in question or the contract as a whole.
We offer cost effective advice whether you are a company which is employing a director and you need an appropriate, bespoke director service agreement, or whether you are an employee, offered a directorship and a contract and you need advice on it or assistance with the negotiations. Please get in touch for a free discussion.