Director service agreement

An executive director is an employee with a second set of obligations under company law, and the service agreement is the document that deals with both: the duties the director owes the company as a director, the authority they have, the notice and garden leave that protect the company when they go, the pay and bonus the board approves, covenants drafted at the width a director's position justifies, and the resignation from the board and the limits on payments for loss of office that company law imposes. I draft that agreement for the company for a fixed fee of £995, delivered in five working days.

Who this is for

Companies in England and Wales appointing or re-papering executive directors, from a founder formalising their own position to a company bringing in a finance, operations or commercial director.

What matters in a director's service agreement

Why a director needs a service agreement rather than an employment contract

A director holds an office under the Companies Act 2006 (with the general duties in sections 171 to 177, removable by the shareholders under section 168) and, where paid to work, is also an employee with the rights the Employment Rights Act 1996 gives; the service agreement governs the employment and records how it interacts with the office: the director's obligations to comply with the Act and the articles, the consequences of removal as a director for the employment, the company's obligation under section 228 to keep a copy of the agreement for inspection by members, and the terms that an ordinary contract does not contain (longer notice, garden leave, director-level covenants, board resignation, conflicts).

Duties, authority and the board

The agreement should state the director's role and reporting line (the board, the managing director or the chair), the authority delegated to them and its limits (contracts above a value, borrowing, hiring above a level, matters reserved to the board or the shareholders under any shareholders' agreement), the obligation to devote their time to the company and the outside interests permitted, the obligation to declare interests under section 177 of the Companies Act 2006 and to avoid conflicts under section 175, and the duty to report their own wrongdoing and that of other directors; a director's authority defined in the agreement is a director the board can hold to it.

Notice, garden leave and the two-year rule

Notice should be long enough to protect the company (several months, with the statutory minimum under section 86 of the Employment Rights Act 1996 as the floor), with a garden leave clause, a pay in lieu of notice clause, and the garden leave period set off against the covenants; the agreement should avoid a guaranteed term or notice of more than two years, because section 188 of the Companies Act 2006 makes a provision under which a director's employment is guaranteed for more than two years void without shareholder approval, and the company's obligation to pay for that period is unenforceable.

Pay, bonus, benefits and the board's approval

The agreement should state the salary and its review, the bonus scheme and whether it is discretionary or contractual, the benefits (the pension assessment the Pensions Act 2008 imposes, private medical, car, life cover), and any equity or options under a separate agreement, with the remuneration set by the board or a remuneration committee and the director excluded from voting on their own pay under the articles (the Companies (Model Articles) Regulations 2008 treat it as a conflict); the agreement should also say what happens to bonus on termination and during garden leave, and should contain clawback with the written consent section 13 of the Employment Rights Act 1996 requires.

Restrictive covenants at director level

A director's access to the company's strategy, finances and relationships justifies wider covenants than an employee's: non-solicitation and non-dealing with clients and prospects, non-poaching of staff, non-interference with suppliers, and a non-compete for a period measured in months in the company's field, each drafted separately and limited to what the director's role justifies, with the garden leave period set off; a director who is also a shareholder should give covenants in the shareholders' agreement as well, where they are enforced more readily because they protect goodwill the director owns, and the two sets should be consistent.

Termination, resignation from the board and payments for loss of office

The agreement should provide that the director resigns from the board and all group offices on termination of the employment (with a power of attorney for the company to sign the resignation if they do not), that removal as a director under section 168 of the Companies Act 2006 does not of itself end the employment but the company may then terminate it, and that any payment for loss of office beyond the contractual entitlements requires shareholder approval under section 217 of the Act; it should also set the summary termination grounds (misconduct, disqualification, insolvency, bringing the company into disrepute), the return of property and the handover, and the obligation to cooperate with the company after leaving.

What it costs

Senior or director service agreement, £995. With properly drafted restrictive covenants and garden leave. Five working days.

Employment contract, £595. One template you can reuse for a grade of staff. Five working days.

Buying online forms the engagement on payment. The scope is what the employment contracts and handbooks page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A bespoke contract drafted for how you employ people
• Restrictive covenants drafted at a scope a court will uphold
• Confidentiality and intellectual property provisions that put ownership where it belongs
• The statutory particulars, so the document does the job section 1 of the Employment Rights Act 1996 requires it to do
• Flexibility clauses where you genuinely need them, drafted to survive challenge
• Core policies: disciplinary, grievance, sickness absence, equal opportunities, data protection and, increasingly, AI use
• One round of amendments

What is not included

• Acting for employees
• Employment tribunal representation
• Payroll, pensions auto-enrolment and tax
• Immigration and sponsor licence work
• Day to day HR handling, disciplinaries, grievances and redundancy processes

Questions I am often asked

Can we give our director a three-year fixed term?

Not without shareholder approval: a guaranteed term of more than two years is void under the Companies Act without it. A rolling notice period of several months with garden leave is the usual structure.

If the shareholders remove the director, does their employment end?

Not automatically. The agreement provides that the company may then terminate the employment on notice or in lieu, and that the director resigns all offices on termination.

Can we pay a departing director a golden handshake?

Beyond the contractual entitlements, only with shareholder approval under section 217 of the Companies Act. The agreement records the contractual position; a settlement agreement deals with the rest.

Related guidance and services

• Employment contracts and handbooks, £995, the service this page describes
• Shareholders agreement, £995
• Settlement agreements for employers, £795
• Director service agreement with equity
• Service agreement for a managing director

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.