Build the Agreement Around the Director’s Actual Role

Identify the Company, Director and Appointment

The opening provisions should accurately identify the company and director and record the appointment date. The agreement should also make clear whether the individual is serving as an executive or non-executive director.

For an executive director, the important point is that appointment to the company’s board and contractual employment are not necessarily the same legal relationship. The agreement should therefore make the contractual position sufficiently clear rather than assuming that appointment as a director automatically answers every employment question.

Define Executive Responsibilities Without Creating Ambiguity

Duties should reflect the director’s real position within the business. The agreement can address the job title, reporting lines, board responsibilities, authority limits, working location and any requirement to work abroad.

This is particularly useful where the director has significant operational authority. If the employment duties are vague while the director’s corporate responsibilities are extensive, disputes can arise later about what the director was actually required or authorised to do.

Set Remuneration So the Contract Matches the Company’s Actual Arrangement

The remuneration provisions should correspond with the arrangement actually approved by the company. Depending on the role, this can include basic salary, payment frequency, bonus arrangements, commission, benefits, pension arrangements, company-car benefits and equity incentives.

Discretionary bonuses should also be drafted carefully. If payment depends upon particular conditions, those conditions should be identifiable rather than leaving the director and company with materially different expectations.

Employment Particulars That Should Be Built Into the Agreement

Day-One Written Employment Particulars

Where the director is an employee, the supplied framework identifies the Employment Rights Act 1996, section 1, as requiring written employment particulars on or before the first day of employment. The relevant information includes the employer and director’s names, employment dates, remuneration, working hours, holiday entitlement, job title and duties, place of work, overseas working requirements, notice arrangements, probation, training and sick-pay arrangements.

Using the service agreement to incorporate these particulars can reduce the risk of having separate employment documentation that does not match the director’s actual contractual terms.

Contractual Notice Versus Statutory Minimum Notice

The agreement should distinguish between the notice period negotiated by the parties and the statutory minimum notice applicable to an employee.

Under the supplied framework, section 86 of the Employment Rights Act 1996 provides statutory minimum notice, described as one week for each continuous year of service up to a maximum of 12 weeks. A contractual provision should therefore be checked against the applicable statutory minimum rather than assuming that the written notice clause will always determine the outcome.

The Company-Law Checks That Need to Happen Before Signing

The Two-Year Long-Term Service Contract Trap

One of the most important checks concerns a guaranteed service period exceeding two years.

Under sections 188–189 of the Companies Act 2006, the supplied framework identifies circumstances where an ordinary resolution of the company’s members is required for a guaranteed employment or notice period exceeding two years. The approval position should therefore be established before the agreement is executed.

Failing to address this can affect the enforceability of the long-term security that the parties believed they had negotiated. The supplied framework states that the relevant guaranteed-term provision can become void under section 189.

Termination Payments and Loss-of-Office Provisions

Enhanced termination compensation and other payments connected with loss of office require particular care.

The agreement should identify whether the director is entitled to compensation, retirement benefits or another payment when leaving office. The supplied framework identifies Companies Act 2006 provisions concerning shareholder approval and statutory exceptions for particular loss-of-office payments.

This check should take place before signing rather than only when the director is leaving, because an apparently straightforward termination provision can create a separate company-law issue.

Service Contract Inspection and Company Records

The company should also consider its obligations concerning retention and inspection of the service agreement or a memorandum setting out its terms.

The supplied framework identifies sections 228–229 of the Companies Act 2006 as relevant to retaining the agreement and member inspection rights. The company’s corporate records should therefore be maintained alongside the executed agreement and relevant approvals.

Director Removal Is Not the Same as Employment Termination

Removing the Person From the Board

Removal from the office of director is a separate corporate step. The supplied framework identifies section 168 of the Companies Act 2006 as relevant to removal from office.

The practical mistake is to treat the board position and employment relationship as interchangeable. A company dealing with removal should check both positions rather than assuming that one resolution resolves the contractual employment relationship.

Ending the Employment Relationship

The employment relationship should be dealt with according to the service agreement’s termination provisions. This may involve contractual notice, payment in lieu of notice, accrued remuneration and benefits.

Where the company has removed the individual from office but has not properly dealt with the employment contract, the director may still have contractual claims arising from termination.

The Dual-Status Problem

An executive director can occupy two distinct positions: statutory officeholder and employee. That distinction matters most when the relationship breaks down.

The supplied framework specifically identifies the risk of assuming that removal from office automatically terminates employment. Section 168(5) of the Companies Act 2006 and employment law can therefore become relevant to different parts of the same dispute.

Clauses That Become Critical When the Director Leaves

Garden Leave

Garden leave provisions can be important where the company wants the director to remain employed and paid while being excluded from day-to-day business activities.

The agreement should address continuing salary and contractual benefits, access to company systems and premises, and the relationship between garden leave and post-termination restrictions.

The supplied framework highlights the risk of poorly drafted garden-leave arrangements, particularly where the company restricts the director’s ability to work without having adequate contractual authority to do so.

Confidential Information

A senior director may have access to sensitive commercial information, customer information, strategic plans and board-level material. Confidentiality provisions should therefore reflect the information the director will actually handle.

The obligation should also deal with what happens after termination, particularly where information remains commercially sensitive after the employment relationship ends.

Intellectual Property Created During the Appointment

The agreement should address ownership of intellectual property created during the director’s work. This can include copyright, inventions, business concepts and other developments.

An express assignment can be particularly useful where the director may create valuable business concepts or intellectual property that falls outside a narrow understanding of ordinary employee duties. The supplied framework identifies the Copyright, Designs and Patents Act 1988 and Patents Act 1977 in this context.

Restrictive Covenants That Are Actually Defensible

Restrictive covenants should be drafted around the company’s legitimate commercial interests rather than simply imposing the longest possible restriction.

Potential provisions include post-termination restrictive covenants, non-solicitation, non-dealing, confidentiality and non-compete obligations. Duration, scope and geographical limitations should be considered carefully, particularly where the director has access to customers, strategic information or commercially sensitive relationships.

The supplied framework identifies Tillman v Egon Zehnder Ltd [2019] and the restraint of trade doctrine as relevant to excessively broad restrictions.

Signing, Authorisation and Company Records

Decide Whether the Agreement Is Signed Under Hand or as a Deed

The company should determine the appropriate execution method before signing.

The supplied framework identifies ordinary contractual execution, board authority and, where relevant, deed execution under Companies Act 2006 section 44 and section 1 of the Law of Property (Miscellaneous Provisions) Act 1989. The chosen execution method should match the document and the legal effect intended by the parties.

Complete the Company Approval Trail

The company should keep a clear record of the approvals supporting the agreement. Depending on its terms, this may include board approval, member approval, corporate resolutions and the executed agreement itself.

This becomes particularly important where a provision depends upon statutory shareholder approval. The approval should not be treated as an informal conversation between directors; the relevant corporate record should be maintained.

What Does and Does Not Go to Companies House

The Service Agreement Itself

The service agreement is a private corporate document and is not ordinarily filed at Companies House merely because it has been signed.

That does not mean the company has no corporate filing obligations connected with the director.

Director Appointment and Officer Filings

The appointment of a director as a statutory officer involves separate Companies House notification requirements. The supplied framework identifies Form AP01, or Form AP02 for corporate directors, as relevant to appointment notifications.

The service agreement should therefore not be confused with the company’s statutory officer filings.

Long-Term Contract Approval Records

Where the terms of the agreement require member approval, the company should ensure that its corporate records properly reflect that approval and address any associated filing requirement identified for the transaction.

This is one reason the agreement, board records and shareholder resolutions should be reviewed together rather than treating the signed contract as the only relevant document.

Common Drafting Failures That Create Expensive Director Disputes

A Guaranteed Term Longer Than Two Years Without Approval

A three-year guaranteed term or rolling notice arrangement exceeding two years can create a section 188 issue if the required member approval has not been obtained.

The supplied framework identifies section 189 consequences for an unapproved guaranteed term. The practical problem is that the director may believe they have secured a particular level of contractual protection while the company later challenges that protection.

Removing the Director and Assuming the Employment Contract Has Ended

This is a particularly serious mistake with executive directors. Removal from office and termination of employment should be analysed separately.

Failure to do so can lead to contractual claims concerning notice, remuneration and dismissal, alongside statutory employment claims where applicable.

Overreaching Post-Termination Restrictions

A restriction that is too broad may be difficult to enforce. Problems can include excessive non-compete periods, unreasonable geographical scope and poorly defined restricted activities.

The restriction should be tied to a legitimate commercial concern rather than drafted simply to prevent the director from working elsewhere.

Poorly Drafted Garden Leave

Garden leave can become contentious where the contract does not clearly authorise the company’s intended restrictions.

The agreement should deal expressly with salary continuation, access to systems and the relationship between garden leave and restrictive covenants. A serious contractual breach can create additional problems for the company’s attempt to enforce post-termination restrictions.

Failing to Secure Intellectual Property Ownership

Relying entirely on general employee IP assumptions can create uncertainty where a director develops business concepts, inventions or other valuable material.

An express assignment provision can reduce the scope for an ownership dispute after departure, particularly where the director’s activities extend beyond routine employment duties.

UK Legal Facts for a Director’s Service Agreement

Legal Requirements Table

These requirements are drawn from the supplied verified legal framework.

Practical Legal Impact

The main compliance point is that the agreement should not be considered in isolation. Particular provisions can trigger company-law approval requirements, while the employment provisions need to contain the required employment particulars.

The company should also maintain an approval and record trail. That becomes especially important where the agreement contains a long guaranteed term or significant payment on termination.

The director’s dual status also affects termination decisions. A company dealing with an executive director should check the corporate office position and contractual employment position separately.

When the Agreement Needs More Than a Standard Template

Executive Remuneration and Equity

A more detailed agreement may be needed where the director receives share options, equity incentives, significant bonuses, deferred remuneration or change-of-control benefits.

These arrangements can make the remuneration and termination provisions considerably more complicated than those in a straightforward employment contract.

Complex Termination Arrangements

Enhanced notice, PILON, settlement arrangements on departure, retirement benefits and loss-of-office payments should be reviewed together.

Where substantial sums may become payable on departure, the company should establish whether any member approval requirements apply before the agreement is executed.

Directors With Significant Commercial Influence

Some directors have unusually extensive access to confidential information, customer relationships, strategic business information and intellectual property.

For these appointments, the confidentiality, IP and restrictive covenant provisions deserve particular attention. A generic clause may not properly reflect the commercial risks created by the director’s position.

Practical Enforcement: Where Director Disputes End Up

Employment Tribunal Claims

The supplied framework identifies the Employment Tribunal as relevant to statutory employment claims involving issues such as unfair dismissal, whistleblowing detriment, discrimination and unlawful deductions from wages.

The contractual position can be more complicated where the director’s claim concerns substantial notice pay or other contractual sums.

Civil Court Claims

Wrongful dismissal, contractual notice disputes, restrictive covenant enforcement, confidentiality breaches and intellectual property disputes can require civil court proceedings.

The forum will depend on the nature and value of the claim. High-value executive disputes may move beyond the contractual jurisdiction of the Employment Tribunal and into the civil courts.

High-Value Executive Litigation

The supplied framework identifies the High Court, including the Business and Property Courts, as an important forum for high-value executive disputes. It also identifies applications for interim injunctions under CPR Part 25 where urgent enforcement of restrictive covenants or confidential information protections is required.

This is why restrictive covenant and confidentiality drafting should be considered before the relationship breaks down. Once a director has left and joined a competitor, the company may need urgent court intervention rather than simply relying on the contractual wording.

Frequently Asked Questions