Director's Service Agreement (Australia)

A Director's Service Agreement in Australia records the services to be provided, the fees, the service levels, and each party's obligations between the provider and the client under the Fair Work Act 2009 (Cth).

An executive director occupies two distinct roles simultaneously: as an employee subject to the Fair Work Act 2009 (Cth) and as an officer subject to the duties and obligations in the Corporations Act 2001 (Cth). The Fair Work Act 2009 (Cth) applies where the director is genuinely employed — most executive directors of Australian companies are employees. Under s 44 of the Fair Work Act 2009 (Cth), the National Employment Standards (NES) apply to all employees and cannot be excluded, including minimum notice periods, annual leave under s 87, personal/carer's leave under s 96, and redundancy pay under s 119.

The Corporations Act 2001 (Cth) imposes statutory duties on all directors, including executive directors who are also employees. Section 180 requires directors to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise. Section 181 requires directors to act in good faith in the best interests of the corporation and for a proper purpose. Sections 182 and 183 prohibit improper use of position or information. Section 588G imposes a personal duty to prevent insolvent trading. A well-drafted Director's Service Agreement acknowledges these duties and confirms that nothing in the agreement limits them.

For public companies, director remuneration governance is heavily regulated. Section 300A of the Corporations Act 2001 (Cth) requires detailed remuneration disclosures in the annual directors' report, including fixed and variable components, performance conditions, and the relationship between remuneration and company performance. Listed companies must put the remuneration report to a non-binding advisory vote at each AGM under s 250R(2), and a 'two strikes' rule under ss 250U–250V can lead to a board spill if shareholders vote more than 25 percent against the report for two consecutive years. The ASX Corporate Governance Principles and Recommendations (4th Edition) published by the ASX Corporate Governance Council further guide remuneration governance for listed entities. For proprietary companies, s 202A of the Corporations Act 2001 requires director remuneration to be fixed by the members unless the constitution otherwise provides. Forms-legal.com provides this template as a starting point for Australian director employment documentation.

A Director's Service Agreement is needed whenever an individual is appointed as an executive director of an Australian company and will be performing both board-level and executive management functions in exchange for remuneration. The agreement is particularly important in several specific situations.

New executive director appointment: When a company appoints a new CEO, CFO, COO, or other C-suite executive who also holds a board seat, the Director's Service Agreement sets out the full terms of the dual relationship. Without a written agreement, the employment terms default to the applicable modern award (if any) and the National Employment Standards under the Fair Work Act 2009 (Cth), which may not reflect the parties' intentions regarding notice periods, post-employment restraints, or variable remuneration.

Promotion of an employee to the board: When a senior employee is promoted to the board as an executive director, an existing employment contract should be superseded by a Director's Service Agreement that addresses both the employment terms and the director's statutory duties under the Corporations Act 2001 (Cth). Carrying forward an employee-only contract without updating it for the director role creates gaps in confidentiality and IP assignment provisions that can be costly to resolve later.

Remuneration governance for public companies: For listed companies, the Director's Service Agreement underpins the remuneration disclosures required by s 300A of the Corporations Act 2001 (Cth) and the non-binding shareholder vote under s 250R(2). The agreement must set out fixed and variable remuneration components, performance hurdles for short-term and long-term incentives, and clawback provisions consistent with ASX Corporate Governance Principles (Recommendation 8.1).

Post-employment restraints: Executive directors have access to the most sensitive commercial information of the organisation — strategic plans, customer relationships, pricing, and M&A pipeline. A Director's Service Agreement containing reasonable non-compete and non-solicitation restraints, enforceable under the restraint of trade doctrine at common law and the Restraints of Trade Act 1976 (NSW) in New South Wales, protects the company's legitimate business interests after the director departs.

Termination structuring: Executive directors are frequently terminated with a negotiated settlement. A Director's Service Agreement with clear termination provisions — including notice periods, payment in lieu, treatment of unvested equity, and release of claims — reduces the risk of unfair dismissal claims before the Fair Work Commission under s 394 of the Fair Work Act 2009 (Cth) and general protections claims under Part 3-1.

A Director's Service Agreement for Australia must address both the employment law requirements under the Fair Work Act 2009 (Cth) and the corporate governance requirements under the Corporations Act 2001 (Cth). The following elements are essential.

Appointment and term: The date of commencement, the nature of the executive role (CEO, CFO, Managing Director, or other title), and whether the term is fixed or open-ended. The agreement should clarify that the executive director's employment as an employee is separate from their appointment to the board, and that termination of one does not automatically terminate the other.

Remuneration package: The total fixed remuneration (TFR) expressed as an annual AUD amount, comprising base salary and employer superannuation contributions at the Superannuation Guarantee rate under the Superannuation Guarantee (Administration) Act 1992 (Cth) (currently 11.5%, rising to 12% from 1 July 2025). Any salary packaging arrangements and the ATO's fringe benefits tax (FBT) implications should be addressed.

Variable remuneration: Short-term incentive (STI) and long-term incentive (LTI) arrangements, including performance hurdles, measurement periods, payment mechanics, clawback provisions, and treatment on termination. For listed companies, these provisions must be consistent with ASX Listing Rule 10.14 (shareholder approval for equity grants to directors) and the remuneration report requirements under s 300A of the Corporations Act 2001 (Cth).

National Employment Standards: Minimum entitlements under the NES that cannot be excluded, including annual leave (four weeks per year under s 87 of the Fair Work Act 2009 (Cth)), personal/carer's leave (10 days per year under s 96), parental leave under Division 5, and redundancy pay under s 119.

Duties and reporting: The executive director's key responsibilities, reporting line (typically to the board or chairperson), and any specific performance expectations, consistent with the director's duty of care and diligence under s 180 of the Corporations Act 2001 (Cth).

Conflicts of interest: An obligation to disclose actual, potential, or perceived conflicts of interest, consistent with the director's duty to disclose material personal interests under s 191 of the Corporations Act 2001 (Cth) and the obligation to act in good faith under s 181.

Confidentiality and IP assignment: Post-employment confidentiality obligations and an assignment to the company of all intellectual property created in the course of the directorship and employment, consistent with the implied duty of fidelity and s 197 of the Copyright Act 1968 (Cth) for employer-created works.

Post-employment restraints: Non-compete and non-solicitation restraints for a defined period and geographic area after cessation of employment. Restraints must be reasonable to be enforceable under Australian common law and, in New South Wales, the Restraints of Trade Act 1976 (NSW).

Termination: Notice periods (or payment in lieu), grounds for summary termination for serious misconduct, treatment of unvested incentives on termination, and any deed of release requirement. For ASX-listed companies, the agreement must comply with the limits on termination benefits under s 200B of the Corporations Act 2001 (Cth) (which generally caps termination benefits at one year's base salary without shareholder approval). Forms-legal.com provides this template as a starting point for Australian director service documentation.