Employment Law Solicitor

For more information contact
Jon Curtis, Partner
0114 272 1903 | email Jon
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Ironmonger Curtis LLP
Registered office:
Edmund House,
233 Edmund Road,
Sheffield,
S2 4EL

0845 225 2635
0114 253 6559
info@ironmongercurtis.com

VAT number 852641622

Ironmonger Curtis LLP
SRA number 417712
Authorised and regulated by the
Solicitors Regulation Authority
Partnership number: OC310963
Members: Trevor Ironmonger, Jonathan Curtis, Simon Smith

Directors service agreements

Service agreements are commonly required by companies employing executives. A properly drafted agreement can help avoid disputes, and can also clarify the “deal” that the parties are entering into.

If your company has directors but no service agreements, it is highly recommended that you consider implementing them. Service agreements fall into the class of document that you hope you never need to refer to! If you do need to refer to a service agreement, it can avoid costly and damaging disputes.

What is a director’s service agreement?
A director’s service agreement is, quite simply, a contract of employment for a director.

A director could actually use the same simple form of contract that an employee uses, but most companies will want more complex documents which cover a wider variety of issues than the more simple form of contract (see below).

It is highly recommended that directors in a company of even a small size have proper service agreements. The agreement regulates the relationship between directors and establishes the “rules” between company and employee.

What is a director?
A director is someone appointed as such by the company. A company will normally have articles of association which sets out certain rules in relation to appointing and removing directors, and there are default rules in the Companies Act.

The “office” of director is distinct from an individual’s status as employee. In other words, you can be either a director or an employee, or both. Most directors will be both employee and director. Directors who own all the shares in a company might normally be director only, but expert advice should be taken on this issue.

What clauses would you find in a director’s service agreement?
You would find the “normal” contractual clauses relating to pay, holidays, pension etc, but in addition you might want:

A more comprehensive “duties” clause, setting out the duties and responsibility of the director. Some examples of the common kinds of duties clause are:

To comply with the requirements of the board;
To report the director’s own or others’ wrongdoing;
To use “best endeavours” to promote the company;
To report to the board in writing if required.

The hours of work clause will normally have a general requirement to work “such hours as are required” rather than specific hours of work.
Detail on how to deal with the long term sickness of the director.
A more substantial confidentiality clause than would normally be found in a simple contract of employment.
A clause dealing with what happens if the director resigns the directorship.
Comprehensive termination provisions including for instance a garden leave clause (which is where, during the notice period, the employee is required to “stay at home” and not perform duties – often seen as the best way of protecting the company against competitive action by a director who is moving on).
Restrictive covenants which are clauses restricting the outgoing director’s activities on leaving the company. There are different types of restrictive covenant – for instance non competition, non-solicitation, non-dealing etc. This is a complex area of the employment law which requires expert advice.
An intellectual property clause that governs who owns the intellectual property in the company and regulates the ownership of “inventions”, new developments and the like.
A reconstruction and amalgamation clause which deals with the situation when the company is reorganised, possibly following a sale or insolvency.
A notice clause regulating how the parties communicate officially with each other.
Various other “boilerplate” clauses including: entire agreement, variation, third party rights, counterparts, and jurisdiction. Many of these do not need dealing with in a “normal” contract of employment. Such clauses can be hugely important in the event of a dispute.

If you would like any help drafting, amending or negotiating your director’s service agreements, please call Jon Curtis on 0114 272 1903 or email Jon on jon.curtis@ironmongercurtis.com