Being a director does not, of itself, make that person an employee of the company. A directorship is an office, not necessarily an employment. If, however, the company enters into a service contract with the director, the terms of which make the director an employee under the usual common law test, then the director becomes an employee. Many company directors are in this position. In these circumstances, relevant aspects of employment law (including statutory protection as to unfair dismissal and redundancy) apply in addition to the law relating to directors.
Subject to the company's articles, the board has power (as part of its general powers of management) to award service contracts to directors and others. Like all directors' powers, granting a service contract must be done bona fide for the benefit of the company. Bothe the Model Articles and Table A contain relevant provisions. Note, however, that CA 2006, sec188 requires any fixed term contract (which cannot be terminated by notice) to be approved by an ordinary resolution in general meeting.
Relevant Model Articles provisions are:
19. (1) Directors may undertake any services for the company that the directors decide.
(2) Directors are entitled to such remuneration as the directors determine-
(a) for their services to the company as directors, and
(b) for any other service which they undertake for the company.
(3) Subject to the articles, a director's remuneration may-
(a) take any form, and
(b) include any arrangements in connection with the payment of a pension, allowance or gratuity, or any death, sickness or disability benefits, to or in respect of that director.
(4) Unless the directors decide otherwise, directors' remuneration accrues from day to day.
14. (1) If a proposed decision of the directors is concerned with an actual or proposed transaction or arrangement with the company in which a director is interested, that director is not to be counted as participating in the decision-making process for quorum or voting purposes.
(2) But if paragraph (3) applies, a director who is interested in an actual or proposed transaction or arrangement with the company is to be counted as participating in the decision-making process for quorum and voting purposes.