A Director's Service Agreement is a legally binding contract between a company incorporated in England and Wales and an individual who is appointed (or is to be appointed) as a director of that company. It sets out the terms and conditions of the director's appointment, including their duties, remuneration, benefits, working hours, notice period, restrictive covenants, confidentiality obligations, intellectual property assignment, and the circumstances in which the agreement may be terminated. Unlike a standard employment contract, a director's service agreement must address the unique legal position of company directors under both company law and employment law.

Directors occupy a dual legal status in English law. As officers of the company, they are subject to the general duties set out in sections 171 to 177 of the Companies Act 2006, including the duty to act within their powers, the duty to promote the success of the company for the benefit of its members, the duty to exercise independent judgement, the duty to exercise reasonable care, skill, and diligence, the duty to avoid conflicts of interest, the duty not to accept benefits from third parties, and the duty to declare interests in proposed transactions. As employees (where they perform executive functions), they are also entitled to the protections afforded by employment legislation, including the Employment Rights Act 1996, the Working Time Regulations 1998, the Equality Act 2010, and the Pensions Act 2008.

Section 227 of the Companies Act 2006 defines a director's service contract broadly to include a contract of service, a contract for services, and a letter of appointment. Under section 228, a company must keep a copy of every director's service contract (or a written memorandum of its terms if the contract is not in writing) available for inspection by the members at the registered office or a SAIL (Single Alternative Inspection Location). This template is drafted in accordance with English common law and incorporates the key statutory requirements to provide a robust and enforceable agreement.

A Director's Service Agreement is required whenever a company registered in England and Wales appoints an executive director who will be performing services for the company in return for remuneration. While non-executive directors are typically appointed under a simpler letter of appointment, executive directors who play an active role in managing the business should have a comprehensive service agreement that clearly defines the terms of their engagement.

The most common circumstances requiring a Director's Service Agreement include: the appointment of a new managing director, chief executive officer, finance director, or other executive director; the conversion of an informal arrangement with a founding director into a formal contractual relationship; the recruitment of an external candidate to a senior directorial position; and the renegotiation of an existing director's terms following a change in the company's ownership, structure, or strategic direction. It is also advisable to put a formal agreement in place before any funding round or investment, as institutional investors and venture capital firms typically require all directors to have documented service agreements.

Section 188 of the Companies Act 2006 imposes a specific requirement for director's service contracts with a guaranteed term exceeding two years. Such contracts must be approved by an ordinary resolution of the shareholders before they are entered into, and a memorandum setting out the proposed contract must be made available for inspection by the members. If a contract is agreed in contravention of section 188, the provision is void to the extent of the contravention, and the company is deemed to be able to terminate the contract at any time on reasonable notice (section 189). This makes it essential to address the question of shareholder approval when drafting a director's service agreement with a term of more than two years.

A well-drafted Director's Service Agreement for use in England and Wales should contain several key provisions that reflect the unique legal position of company directors under English law.

The appointment clause should specify the director's title, commencement date, and reporting lines, and should confirm that the appointment is subject to the Articles of Association and the Companies Act 2006. It should also include a warranty that the director is not disqualified from acting as a director under the Company Directors Disqualification Act 1986.

The duties clause should describe the director's principal responsibilities and expressly reference the statutory duties under sections 171 to 177 of the Companies Act 2006. It should also address the director's obligation to devote their full working time to the company and to obtain prior consent before engaging in any outside business activity.

The remuneration and benefits clauses should set out the director's salary, bonus arrangements (if any), pension contributions (in compliance with auto-enrolment under the Pensions Act 2008), and any benefits in kind such as a company car or private healthcare. All benefits in kind must be reported to HMRC on form P11D, and the agreement should acknowledge this.

The confidentiality clause should define the scope of confidential information and set out the director's obligations both during and after their appointment. It should include a carve-out for protected disclosures under section 43A of the Employment Rights Act 1996 (whistleblowing).

The intellectual property clause should assign all IP created during the course of the director's duties to the company, consistent with sections 39-43 of the Patents Act 1977 and the Copyright, Designs and Patents Act 1988, and should include a waiver of moral rights.

Restrictive covenants (non-compete, non-solicitation, and non-poaching) must be carefully drafted to be reasonable in scope, duration, and geographical area. Following Tillman v Egon Zehnder Ltd [2019] UKSC 32, courts may sever unenforceable provisions rather than void the entire covenant. A garden leave clause supports enforceability by providing a cooling-off period during the notice period. The governing law clause should specify the laws of England and Wales and the exclusive jurisdiction of the courts of England and Wales.