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Director Agreement

For the purpose of this article the term director agreement refers to the employment agreement of a director, who is in an employment relationship but not subject to the provisions of the Working Hours Act. Generally speaking, a director agreement is not an exact definition and sometimes it is used to mean the agreement of a managing director or that of another responsible person in a similar position to whose employment relationship the Employment Contracts Act is not applied, see [Managing Director Agreement].

A director agreement sets out the rules for the relationship between the employer and the director. A director agreement might be reasonable for example when the person in question is in a leading position or an independent specialist with a very independent range of duties as well as a significant position and profit responsibility in the company, but whose employment relationship is not subject to the Working Hours Act.

The Working Hours Act does not apply to work that is to be considered as management of a corporation or an independent part thereof by virtue of the relevant duties and of the employee's position otherwise, or to independent work directly comparable with such management. However, keep in mind that the majority of labor legislation, for example the Employment Contracts Act and the Annual Holidays Act, together with the director agreement , also apply to directors in employment relationships.

The provisions of the Employment Contracts Act regarding termination of the employment contract apply to directors in an employment relationship. Also, the Employment Contracts Act determines inter alia confidentiality and non-competition obligations during the employment relationship. However, a director agreement should contain the continuation of these obligations after the termination of the employment relationship.

The director agreement should cover at least the following issues:

  • parties

  • commencement of duties and the contractual relationship

  • duties and place of work

  • working hours

  • compensation (salary, possible incentive schemes)

  • annual leave

  • insurance and retirement benefits

  • possible sick pay

  • travelling and representation

  • training

  • secondary occupations and non-competition obligation

  • intellectual property rights (and employee inventions)

  • confidentiality obligation

  • validity and expiry of the agreement (termination and cancellation)

  • applicable law (and possible collective agreement)

  • dispute resolution