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A service agreement is a written agreement between the business and a senior employee / director. In fact “service agreement” is just a fancy name for a contract of employment; but a service agreement tends to have more comprehensive terms and tends to use more formal language than the standard contract of employment.
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What is in a service agreement?
A service agreement will usually include the following clauses which may not be found in a standard contact:
- Restrictive covenants (also known as non-dealing clauses or post termination clauses) which restrict the executive’s behaviour after the termination of employment.
- Intellectual property clause. In some cases where the company’s intellectual property is important, it will be appropriate to require the executive to agree that any “inventions” made during the course of the employment belong to the company and not to the executive
- Garden leave. In the event of a “fall out” between the executive and the company, often service agreements will contain a garden leave provision. This basically means that during the notice period the executive is not required to work and is required to remain employed and to stay contactable. It is the most effective way the company has of ensuring the executive does not compete against them as soon as the relationship breaks down.
- A “duties” clause which sets out the level of duty owed by the employer to the employee. For instance, the service agreement may require that the executive owes a duty of good faith and fidelity to the company.