Directors' service contracts

Clarity about the nature of the contractual relationship

An executive director used to have a “service agreement”. Today a company is under a statutory obligation to provide written terms of employment, just as it is to any other employee, and even if the director is the sole owner of the company.

A non-executive director is not an employee of the organisation, and therefore requires a contract that preserves his or her self-employed status and clarifies that the work he or she performs is in the nature of consultancy rather than executive employment.

Accordingly, the greatest differences between our directors’ service contracts relate not to what position the director holds, or what he or she does, but to his or her contractual relationship with the company.

All these agreements are therefore suitable:

• for use by any type of organisation: company, charity, trust, partnership, governmental organisation or other
• for use with directors holding any position within the organisation
• for permanent and fixed terms of appointment

What these agreements cover

In addition to the terms that set out the relationship of employment or self-employment, there are many other matters that should be agreed in a contract.

Our documents:

• are up to date with current applicable employment law
• protect the director from unreasonable demands by other directors and shareholders
• set out remuneration and benefits
• cover what happens at termination, and in case of redundancy
• include strong protection for the organisation’s intellectual property
• minimise the administrative burden of legal compliance

Some of the provisions are required to comply with the law. Others are practical. The explanatory notes, which come with these documents, will guide you as to the importance of specific issues.

These contracts provide a balance between protection for the company and for the director. If there is a difference in interests, we favour the company.