Director’s service contract

The status of the contracts of managing directors and directors is different than that of employment contracts. Managing directors are not usually considered employees, which is why the contracts of managing directors are not subject to, for example, the Employment Contracts Act, the Annual Holidays Act or the Working Hours Act. Directors are employees, but a director’s service contract is not subject to the Employment Contracts Act’s limitations in terms of the duration of a non-compete clause or agreement, or the maximum amount of a contractual penalty.

Managing directors and directors do not usually fall under the scope of the Working Hours Act, which means that they are not entitled to the compensation provided for in the Act, unless otherwise separately agreed. This should be taken into account in drafting the contract. Directors who do fall under the scope of the Working Hours Act may agree on the payment of compensation for additional work, overtime and work on Sundays as separate monthly compensation. It is nevertheless advisable to agree on the review of the separate monthly compensation from time to time. In terms of its amount, the separate monthly compensation should correspond with compensation determined pursuant to the Working Hours Act.

A director’s service contract should be read carefully before entering into the contract. If something remains unclear, contact the Union’s customer service. The Union’s legal counsels will assist you in the matter.

Managing directors and directors do not usually fall under the scope of collective agreements. Because of this, it is advisable to agree, in a managing director or director’s service contract, on holiday bonuses, sick pay, paid family leaves, compensation for travel expenses and travel during free time as well as on salary development.

The heading of a contract does not define its legal nature. It is the content of a contract which determines the kind of contract it really is.

The Working Hours Act does not apply to work that must be considered, due to the tasks involved and otherwise due to the position of the employee, as the management of a company, corporation, or foundation, or an independent part thereof, or an independent task considered equal to a management duty of this kind.

To be considered a management task of the independent part of a company, the part managed must be operationally independent and significant in size. A separate unit belonging to a company’s organization, on the other hand, does not meet the criteria set for the independent part of a company.

Tasks can be considered equal to the management of an independent part of a company if your position and tasks are independent and you use decision-making powers that can be considered equal to management. You should always have special expertise and the opportunity to decide on your own working hours. Furthermore, the terms and conditions of your employment relationship should correspond with the terms and conditions of people participating in management duties and they must be clearly better than the terms and conditions of the people you manage or supervise.