Our experience shows that many management board members are still performing their duties on the basis of an employment contract instead of a proper management board member agreement. As the Employment Contracts Act does not extend to management board members, we advise signing proper management board member agreements. Conclusion of a management board member agreement is in the interest of both management board members and the company.
A management board member agreement allows greater protection of the rights and interests of companies by defining non-disclosure and non-compete obligations. As Estonian legislation does not define what exactly can be regarded as company business secrets, we recommend stating an indicative list in the management board member agreement. Even if a general non-compete obligation is included in the Commercial Code we recommend further defining (prohibited) competitive activities, including their territorial scope and expiry date. For example, reporting obligations plus areas of responsibility and liability can also be further defined in the management board member agreement. As the Employment Contracts Act does not apply to management board members, clear and unequivocally negotiated contract terms are also important for every management board member. For example, management board members are not entitled to automatic annual leave entitlement or compensation, or to severance payments or compensation for overtime work, while limitations regarding proprietary liability do not apply. If a management board member is employed on the basis of an employment contract the court may declare the contract non-compliant with legislation as the Employment Contracts Act unequivocally provides that the Employment Contracts Act does not apply to management board members. Conclusion of management board member agreements also benefits management board members as these agreements lay down clear rules for performance of duties as well as rights and obligations and exclude situations where the contents of the management board member agreement and intentions of the parties will be interpreted by the court.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
