New directors? New risk.
Director Service Level Agreements by Albert Bargery, employment law specialist at Parrott & Coales.
Remember Hewlett Packard and a chap called Leo Apotheker? He was appointed CEO of HP after his predecessor was ousted amid messy accusations of sexual harassment - even though Mr Apotheker was previously fired from SAP after only seven months. At the helm of the supertanker, the board then bought British software company Autonomy for $11.1 billion, which some consider the worst corporate acquisition in business history. Continuing with a deft hand brake turn, HP then announced that they were abandoning its’ giant PC business. Then, quickly spinning the ship around the board changed their minds and continued on course. HP then wrote off $18 billion in 2012 related to failed acquisitions and other 'mis-steps'.*
Director and employee
Are you considering a new director? We’re not proposing Leo, but if you are an expanding business, merging, or being bought out you will probably be in the process of promoting or hiring new directors, it is worth doing some thorough checks and remembering that a director can also be an employee of the company.
When this is the case, what duties will they have in addition to their Statutory responsibilities as a director? Are they going to be in an advisory role only or have a more hands on role? In particular, what happens if there is a breach of duty as an employee or as a director? There is considerable amount of work involved in appointing a new director, so how do you cover yourself for all eventualities?
Get a properly worded agreement
It is vital to create a director service level agreement setting out the roles, duties and responsibilities that a new director has as an employee. The agreement must provide the director with the same information regarding their employment as you would provide to any other less senior employee, such as notice periods and salary, but will also usually contain extensive post-termination restrictive covenants so that you can protect your business should they leave. You must consider how their roles interact, particularly if the employee breaches their contract of employment or a duty as a director, and a professionally prepared service agreement will identify the duties the director has as an employee, while clearly separating them from their other position as a director.
Because directors can also be employees of your company, they will have protection under UK and European legislation, such as rights not to be unfairly dismissed or discriminated against. Are you confident you understand how these separate roles interact or that you have identified these separate roles at all?
What to do now
Of course don’t take the risk. Contact Albert Bargery, Parrott & Coales’ employment law specialist to help draw up watertight director service agreements. It’ll cost less than you think and could save you a small fortune. Call us today on 01296 318500.
*As reported in The new York Times MARCH 29, 2013 here.