Directors and other top level executives, such as chief executive officers, are, in principle, not covered by the Danish protection laws, such as the Salaried Employees Act and the Holiday Act, as executives are not considered ordinary employees. This means, on the one hand, that there is a great deal of freedom of contract when drawing up an executive’s contract, but on the other hand it also means that the executive’s rights and obligations largely depend on the executive’s contract. It is therefore essential to carefully consider the content of said contract.
What is an executive contract?
An executive’s contract is, in short, the executive’s employment contract. It is an agreement entered into between the executive and the company upon the appointment of the executive.
The executive occupies a unique position in the company, and it must therefore first and foremost be clarified whether the individual in question is an executive or an ordinary employee. In this connection, it is crucial to be aware that the job title is not the only decisive factor. What matters most is whether the position represents the top level day-to-day management. However, a executive’s registration at the Danish Business Authority as director of the company will create a presumption that the person in question is an executive, and this presumption is difficult to disprove.
Suppose a executive’s contract is entered into with an employee, but it later turns out that the person in question is, in fact, an employee. In that case, the consequence is that the protection laws for employees apply, e.g. the Salaried Employees Act. Therefore, if the executive’s contract contains provisions that contradicts these protection laws, the provisions in question will be invalid.
What does an executive’s contract contain?
There is no legal regulation of what an executive’s contract must contain. Therefore, it is up to the parties themselves to decide what will be included.
However, there are some points that the executive’s contract should always or often include:
- Job description and powers
- Remuneration, bonus, and employee benefits as well as pension and holiday
- The ability to accept other duties outside the company during the employment
- Non-solicitation and non-competition clauses
- Duty of confidentiality
- Incentive schemes such as options and warrants
- Termination, including in case of a change in ownership
- Severance pay
- Settlement of disputes
Thus, many issues need to be considered when drafting an executive contract.
What should you be aware of?
In addition, it is vital to be aware that the Companies Act contains several rules on executives. The law lays down the general duties and responsibilities of both boards of directors and management boards, just as it also includes a prohibition on speculation and limitations on payment of the company’s funds to top level executives.
This is how we can help you with an executive contract
At Advokatgruppen, we are ready to help tailor an executive contact so that it precisely meets your company’s needs. We are happy to evaluate your company’s templates free of charge. Meet our dedicated lawyers here.