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Director's service agreement

22 Mar 2017

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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The information in this guidance is intended for general information purposes only and does not constitute legal or professional advice. The IoD does not accept any responsibility for any loss which may arise from relying on information contained in this article. It is not a substitute for legal advice and specific and personal legal advice should be taken on any individual matter. IoD does not recommend any firms. The IoD is not accountable for the products, services, acts or omissions on the website(s) linked to this page. Website terms and conditions apply.

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