Executive directors have significant powers and responsibility for numerous aspects of a company's business, and it is for this reason that it is fundamental that a director’s rights and duties are correctly specified and agreed in legally binding document.
Employment contracts for executive directors are commonly known as service contracts. At MBM Commercial, our team of expert Employment Law Solicitors and HR Advisers will work collaboratively with you to ensure that your director’s service agreement is comprehensively drafted, and addresses the key issues associated with the position and the accompanying duties and responsibilities. Our team of experienced solicitors and HR Advisers are on hand to provide clear and practical advice regarding any aspect of these service agreements. We can draft an agreement bespoke to your specific requirements, and highlight the implications of important aspects of an agreement and negotiate the terms of a service contract with the other party on your behalf. At MBM Commercial, we provide an all-encompassing legal service to ensure your best interests are represented and maintained.
Why is a Director’s Employment Contract or Service Agreement Important?
An executive director’s service agreement is very similar to a contract of employment. Both documents outline the rules, duties and reciprocal obligations that govern and underpin the relationship between the director and the company. By accepting the terms of the agreement, both director and company will be entering into a legally binding contract; it is, therefore, important to understand the obligations you are accepting and the potential implications of these in the context of possible future events or unforeseen circumstances.
A director’s service agreement commonly includes the following provisions, each of which plays an important role underpinning the relationship between director and company:
- Basic Provisions: these include clauses concerning hours and place of work, salary, holiday entitlement, etc.
- Bonus or Reward Schemes:provisions could specify whether a director will be entitled to share options, bonus payments based on performance targets, medical insurance or expenses, life and disability insurance or pension options.
- Defined Duties: it is important to identify an executive director’s duties, role and limits on authority to avoid future disputes or complications regarding a director’s position and responsibilities. The position of director has various accompanying fiduciary duties that are implied by an executive director's service agreement or a non-executive director’s letter of appointment. There are further duties and general principals set out under the Companies Act that apply to directors. We would recommend that any service agreement also include more precise and defined duties and responsibilities to reinforce implied terms and statutory responsibilities and mitigate ambiguities.
- External Appointments: a service agreement should clarify whether a director is permitted to work with other companies and if any restrictions apply to this entitlement, for example, a non-compete clause preventing the director from working with the company’s competitors. It would be desirable to have a specific procedure for seeking approval from the company or company shareholders, and the particular grounds on which approval may be refused.
- Notice Period: the notice period on which employment can be terminated is an essential provision of every employment contract. A balance must be reached allowing both the company sufficient time to find a new director while at the same time allowing a director to be released within a reasonable period to take up a new position or pursue their choices. The appropriate length of notice will greatly depend on individual circumstances but is ordinarily between 6 and 12 months for senior directors. Our solicitors can advise on the best options for you or your company shareholders and represent your best interests in any negotiations.
- Termination and Resignation: the service agreement should specify the process of resignation/termination as both an employee and a director, as well as possible grounds for termination, most commonly including fraud and gross misconduct.
- Restrictive Covenants and Confidentiality: restrictive covenants should be included in a service agreement to restrict a former director’s actions and possible future business projects upon departure from the company and their position as director. Restrictive covenants enable a company to protect itself against unfair competition and the potential authorised use or disclosure of sensitive and confidential information, effectively safeguarding a company’s relationships with its key customers and employees.
Contact our Employment Solicitors and HR Support in Edinburgh & London
At MBM Commercial, our team of expert Employment Law Solicitors will advise on the most appropriate and important provisions to be included in your executive director’s service agreement and provide a comprehensively drafted contract bespoke to your particular circumstances. We will work hard to understand the unique issues affecting you as an individual and work with you to identify the safeguards you will require to be included in a service agreement.
If you require the drafting of an executive director’s service agreement, seek assistance understanding the possible implications of particular provisions, or require help negotiating the specific terms of an agreement, please contact us on 0808 278 1429 or fill out our online contact form.