A director agreement is a contract between a company and its executives regarding work performance. It differs from an employment contract in that it is not fully subject to otherwise mandatory regulations.
A director agreement is successful when it is carefully planned and clearly drafted. We help you to:
- Understand what can be agreed upon in a director agreement
- Plan and negotiate director agreements for the CEO and other executive management
- Develop contract models for directors that are motivating and fall within the scope of contractual freedom while considering mandatory regulations.
Work hours in a director agreement
According to the Working Hours Act, the law does not apply to work which,
is to be considered management of an undertaking, corporation or foundation or an independent part thereof by virtue of the relevant duties and of the employee’s position otherwise, or independent work directly comparable to such management;
It is important to clearly define the terms and expectations regarding working hours to ensure that the directors’ roles and responsibilities align with the company’s objectives.
Amendment and termination of a director agreement
Amending and terminating a director agreement requires special care. The procedures for amending the agreement and the practices related to termination should be clearly defined in the contract.
Amending the Director Agreement:
A director agreement may include terms specifying the conditions under which the contract can be amended. Unilateral changes to the agreement are only permitted if explicitly agreed upon. For example, modifications to the performance-based bonus calculation model may be allowed if the agreement contains a clear provision granting the employer the right to make such changes. It is essential to ensure that amendment clauses are reasonable, transparent, and legally sound.
Termination of a Director Agreement
Unlike employment contracts, the termination terms of director agreements can be more freely customized. It is advisable to define the following in the agreement:
- Notice period and its duration from the perspective of both parties.
- Possible severance compensation, which can provide security for the director when the contract ends.
- Handling of performance-based bonuses, if termination occurs during the bonus period.
It is especially important to clearly define how performance-based bonuses are determined in the event of termination. This helps prevent ambiguities and potential disputes that may arise during the termination process.
Clear and comprehensive termination terms provide the company with flexibility in managing director relationships while ensuring the directors’ rights, benefiting both parties.
Non-competition clauses in director agreements
The Employment Contracts Act allows for special treatment of directors regarding non-compete clauses, as provisions…
…on restricting the duration of an agreement of non-competition and the maximum contractual penalty does not apply to employees who, in view of their duties and status, are deemed to be engaged in the direction of the enterprise, corporate body or foundation or an independent part thereof or to have an independent status immediately comparable to such managerial duties.
A director agreement often includes non-compete clauses. This is an essential part of the agreement, as executives typically have access to strategically important information. The agreement should specify:
- The duration, scope, and geographical extent of the non-compete clause.
- Reasonable compensation for the non-compete period to ensure compliance with legal requirements. A well-drafted non-compete clause prevents key personnel from joining competitors or exploiting the company’s trade secrets, safeguarding the continuity of the business.
