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Director's service agreement

15 Oct 2018

An executive director has certain rights and obligations arising as an employee as well as a director of a company

A director’s service agreement should include the following information:

  • appointment commencement date, employment commencement date (which may be different), notice required by either party to terminate the agreement
  • duties of the director including any provisions under which a director may be required to serve on the boards of companies within a group of companies
  • reference to the statutory duties of directors contained in the Companies Act 2006 (not essential as this will apply in any event but becoming more common)
  • requirement for the director to comply with various company policies including but not limited to the company’s anti-bribery and corruption policy
  • a right for the company to monitor the director’s email and other communications carried out on company equipment
  • limitations on the director in engaging in business or professional activities outside the employment, and method of obtaining prior approval if such activity might be acceptable to the company
  • remuneration details: salary, bonus schemes, share options, medical insurance, life and disability insurance, pensions, company car and/or other benefits including sufficient flexibility for the company to review, amend or withdraw the benefit in appropriate circumstances
  • details of reimbursement and authorisation for expenses
  • location of the director’s main place of work, arrangements relating to any future change of location on a permanent or temporary basis and details relating to the requirement to travel for business
  • holiday entitlements
  • entitlements relating to pay during periods of absence due to sickness or accident
  • 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
  • provisions concerning disclosure of company information which is considered confidential
  • provisions relating to intellectual property issues
  • circumstances under which the service agreement may be terminated by the company without notice
  • where the grievance, disciplinary and appeals procedures may be found (the procedures themselves normally being non-contractual)
  • details of any constraints that may apply to the director on leaving the company including working for a competing organisation, setting up in competition to the company, soliciting or dealing with company clients and poaching senior members of staff
  • other provisions relating to the termination of the employment including the right for the company to give pay in lieu of notice and/or to place the director on gardening leave and the return of company property
  • requirement for the director to remove company client/customer details from their social media sites (such as LinkedIn) and to disclose any relevant social media site passwords
  • specification of which law governs the agreement (eg the law of England)
  • evidence that the agreement has been approved by the board

The IoD Directors' Advisory Service factsheet "What should be included in a Service Agreement for directors?" gives a more in-depth guide of the matters to be included in a Director's Service Agreement. As an IoD member, you may also consult the Directors' Advisory Service for advice on specific agreements.

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