Employment Agreement with Directors – Its Meaning
Hiring and appointing directors in India is governed by the Indian Companies Act, 2013 and charter documents of the company such as the articles of association. While the said legislation defines the different types of directors, such as executive, independent and additional director including their powers, tenure and appointment procedures, the articles of association further strengthen the said provisions. It is for this reason that an employment agreement executed to appoint a director will have to be prepared in consonance with the Companies Act and AoA so as not to override or violate any provision therein. Any conflicting provision of the agreement with the above legislation and/or charter document will render the agreement null and void. It is also for this reason that an employment agreement with directors is very different from an employment agreement with employees. While the former is governed by the Companies Act, 2013 (the “Companies Act”), the latter is governed by various state and central employment / labour laws.
Contours of an employment agreement with directors:
A director’s employment agreement specifies the director’s status as an independent, executive or nonexecutive director and also specifies the director’s powers, role and responsibility. A director’s agreement is a contract where the company may choose to specify conditions for remuneration, termination and making sure that the director does not act outside of his power. A director’s contract, inter-alia, can contain clauses like salary (basic and variable pay, including allowance), his role and responsibility toward the company, termination procedure, details of job description, achievable sale targets, and prohibition or permission of double employment. The agreement can also specify and limit the duties of the director so long as it is in compliance with the Companies Act, 2013 and the articles of association of the company. There is no restriction on amount of remuneration for whole time director/executive director in a private limited company, irrespective of whether company is making profit or loss and the same is usually defined in an employment agreement. As also mentioned above, should there be any contradiction between the provisions of the Companies Act, 2013 and the agreement, in consonance with section 6 of the Act which contains non-obstante clause, the former will prevail.
Execution of Such Agreements:
Such agreements are usually executed on a non-judicial stamp paper of appropriate value, though many companies choose to execute the said agreement on their letter-head. Even though this does not invalidate the agreement, it weakens its legal sanctity.
Where Can I Find a Sample Director’s Employment Agreement?
A sample director’s employment agreement can be downloaded at the business document section of our site. You could tailor it to suit your needs or simply have one drafted to suit your current situation.
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Contribution:
This article was contributed by Mallika Raturi, final year law student at NorthCap University. Views expressed are personal