Director’s Service Agreement

Our Director’s Service Agreement template is suitable when appointing a director to the board of any UK company or another senior employee. It is also useful for key employees who you want to prevent poaching your customers or perhaps going to work for a competitor shortly after leaving your business. It sets out the terms of the key employee’s service with the company clearly and unambiguously.

You can downloadable the contract in Microsoft Word format. Once purchased and downloaded, you can complete the template easily, with minimal editing being required. You should be able to produce your final document in just a few minutes.

We include a detailed guide with the download that explains each clause in the director’s service agreement.

We are certain that you will be very satisfied with the director’s service agreement template. David our co-founding solicitor, who has over 20 years’ experience, drafted it. However, if for any reason you are not completely satisfied with your purchase, we offer a no-quibble, full money-back guarantee.

When to use a Director’s Service Agreement

Yes, a director or other senior employee can be appointed without a specific service agreement as long as they already have a contract of employment, but being such a key position it is advisable to put a more suitable agreement in place. The agreement sets out the role that the director or senior employee will fulfill and his or her specific duties.

It is a legal requirement that all employees have a written agreement that sets out the terms of their engagement by the business. Our Director’s Service Agreement Template puts in place a legal contract of employment with the director or other senior employee. Use our template to record the terms of service for any key employee – from a salesperson to a managing director.

This Director’s Service Agreement includes all the clauses that are necessary to satisfy the legal requirement to have a written statement of the terms and conditions of employment for each of its employees.

Suitability of the Director’s Service Agreement

This type of employment contract is suitable for salespeople, senior employees and directors. For junior staff, you may find our employment contract template more suitable.

The service agreement is suitable for use with senior staff who are:

1. full-time or part-time; and
2. fixed-term, permanent or temporary.

This director’s service agreement template is based on our employment contract, but we have made appropriate adjustments to protect the company’s interests when dealing with a senior employee who might be able to damage the business if they left and went to work for a competitor, including:

1. who owns inventions made by the director (see clause 18);
2. restrictive covenants (see clause 19); and
3. a “garden leave” provision (see clause 20).

We have not intended this template to be used for directors of companies that are PLCs which are listed on the UK Stock Market, and, therefore, we have left out references to compliance with the rules of the UK Listing Authority.

As well as the clauses that are specific to a director’s appointment and role in the business, the agreement covers all the standard employment contract clauses, for example holidays and sick leave.

Who should have a directors service agreement

Every member of the company’s board of directors should have a written service agreement contract in place. You can use our template multiple times without paying extra. If the template you have bought is updated, we will notify you and make the new version will be available to you free of charge.

We support businesses with our range of legal document templates. Once you have bought your director’s service template, do explore our full range of employment and HR contracts. Our document templates cover the full range of contracts and agreements that an employer may need.

If the director resigns, we have a suitable form of letter of resignation you should use for this.

FAQs

Below we have answered the top questions from the Internet on this topic.

What is a directors service agreement?

It is a contract setting out the terms under which a director of the company works.  It is very important that a directors responsibilities and rights are clear.

Does a director need a service agreement?

Whilst the directors service agreement is not a legal requirement, it sets out the obligations and rights the director has.  It is crucial should the relationship between the director and the company break down, providing clarity for both parties.

What is the difference between a service agreement and a contract of employment?

It is similar to a contract of employment but goes further in what it covers.  It ensures that the directors duties and responsibilities are clearly clarified.

Can a director vote on their own service contract?

It is a conflict of interest for the director to vote on their own service contract and so they are not able to vote on it.

Does terminating a service contract remove a director from the board?

Even though a director has a service agreement with the company, the Companies Act 2006 still applies.  This means that a director is still an employee of the company and therefore the shareholders can remove him as a director.

In what circumstances do shareholders approve a directors service contract?

If the director’s minimum term was more than two years, under Section 188 of the Companies Act 2006, then the shareholders of the company would have to approve the term.  The Companies Act 2006 sets this out in order to prevent unscrupulous directors from giving themselves lengthy terms with advantageous terms.  Legalo’s directors service agreement does not set out a minimum term and so Section 188 does not apply to our template.

What should be in a directors service agreement?

This document should include a standard statement of terms and conditions of employment.  In addition, clauses that apply specifically to directors should be included as well as non competition and non solicitation agreements.

Can you write your own directors service agreement?

You can write your own document, however we at Legalo have prepared it for you.  If you buy this document you will be safe in the knowledge that you have bought the best document for your business.   A document that will protect your staff and yourself.  Why take the risk?

Guide to our Director’s Service Agreement template

The majority of the agreement is very similar to our employment contract with the following additional clauses, so you can also have a look at the guide to our Employment Contract template for the full picture:

18. Inventions and Intellectual Property

Under this clause if the director creates any intellectual property that the company can use in relation to the business, then it is to be transferred into the ownership of the company by the director (free of charge). Clause 18.3 contains a power of attorney so that the company can do things and sign paperwork necessary to cover any action the director should have taken under clause 18.1 but has failed to do. (As a result, you must sign the agreement as a “deed” – the guide itself explains more about this.)

19. Non-competition covenants

These “restrictive covenants” apply after the termination of the director’s employment. They mean that he cannot work for a competitor or set up in competition himself shortly after termination. This is in order to protect the goodwill and customer connections of the company. To be valid it should not last for longer than is strictly necessary to protect the company legitimate interests. Normally for employees the courts will not uphold a restriction that lasts for longer than about 6 months.

Any period of garden leave (see the note on clause 20 below) should reduce this period by the length of the garden lease – see clause 19.3. The clause should be for the same market (both in type and in the geography of where it operated) and only for a few years. If it is excessively long or wider than the original market of the vendor (in type or geography), then it may be unenforceable in the courts in the event that the director breaches it.

Completing clause 19

In clause 19.1.1 of the director’s service agreement, fill in the number of months it will last on the first line. Fill in the period on line 3 in which customers who have not placed an order recently might still be expected to return or reorder from the business – up to 2 years is normal, but this should relate to the business in question. The same period should appear in the penultimate line of clause 19.1.1. In clauses 19.1.2 to 19.1.5 fill in the number of months it will last on the first line – this should be the same as clause 19.1.1. The second and third numbers in clauses 19.1.2 should be the same as those in clause 19.1.1. The second number in clauses 19.1.3 should be the same as that in clause 19.1.1.

In clause 19.1.4, the restriction on poaching staff should only apply to senior staff (as currently drafted) – it may become unenforceable if you extend it to include junior staff. In clause 19.1.5 fill in the geographical area (e.g. by country, by county or by reference to a radius of a certain number of miles from the business’s current premises) within which the majority of the customers of the business are based. The wider the area, the shorter the term of the restriction should perhaps be to keep it reasonable.

20. Garden Leave

This clause allows the company to send the director home during his notice period. This can be useful in order to isolate the employee from the business, any sensitive market information or its customers. It might enable other employees to take over the director’s duties and secure the company’s connections with its customers. This can be particularly important if the director is leaving to order to join a competitor.

26. Counterparts

You are to sign the director’s service agreement as a deed. This means you can have one print of it signed by the first party and held by the second party. Another print will be signed by the second party and held by the first party.