An office, not a job
The confusion at the heart of most badly drafted executive contracts is that two legal relationships are treated as one. Appointment to the board creates an office governed by the Companies Act and the company’s memorandum of incorporation. Employment creates a contract governed by the Labour Relations Act and the Basic Conditions of Employment Act. They begin differently, they are paid differently, and they end differently.
The Labour Court has put the practical consequence plainly:
A non-executive director holds only the office. A managing director, financial director or any other executive appointed to the board holds both, and every question that follows — how they are paid, what duties they owe, how the relationship ends — has to be answered twice.
Figures last reviewed 9 September 2026.
Drafting for two capacities
A service agreement that works treats the two relationships as separate parts of one document, each with its own start, its own consideration and its own termination.
| The directorship | The employment | |
|---|---|---|
| Created by | Appointment or election under the Companies Act and the memorandum of incorporation | A contract of employment |
| Governed by | Companies Act, the memorandum, the board’s own rules | LRA, BCEA, the contract |
| Paid by | Directors’ fees, approved by special resolution (s 66(9)) | Salary and benefits under the contract |
| Duties | Fiduciary duties and the duty of care in s 76 | Contractual duties, plus the common-law duty of good faith |
| Ends by | Resignation, removal, rotation, disqualification | Resignation, agreement, or a fair dismissal |
| Disputes go to | The company, the courts, the Companies Tribunal | The CCMA or the Labour Court |
Because the employment part is employment, it carries the same statutory minimum content as any other job: the written particulars in section 29 of the Basic Conditions of Employment Act, notice, leave and the rest. Executives are usually above the earnings threshold, so the BCEA rules on hours and overtime fall away and those become contractual — see the earnings threshold.
Approving the pay
Fees for serving as a director are not in the board’s gift. The Companies Act requires shareholder approval, and it puts a time limit on it.
may be paid only in accordance with a special resolution approved by the shareholders within the previous two years
Three practical points follow. The window is rolling: a resolution passed more than two years ago no longer authorises payment, which is why the approval is usually taken annually at the annual general meeting. It is a special resolution, so the higher voting threshold in the memorandum applies. And it governs fees for the directorship — salary paid to an executive under a separate employment contract for executive work does not need it, though a company that pays a single undifferentiated amount for both roles will struggle to show which part was authorised.
Note also that from 22 May 2026 public and state-owned companies must prepare a remuneration policy and an annual remuneration report, including a disclosed pay gap. Private companies are not covered — see what is changing.
The duties you cannot contract out of
The Companies Act sets a standard of conduct for directors that the agreement can restate but cannot reduce. A director must exercise their powers and perform their functions in good faith and for a proper purpose, in the best interests of the company, and with the degree of care, skill and diligence that may reasonably be expected of a person carrying out those functions with that director’s knowledge and experience.
in good faith and for a proper purpose
Section 78 then makes void any provision in an agreement that purports to relieve a director of those duties or of the liability that flows from breaching them, or to limit the consequences of wilful misconduct or a wilful breach of trust. What the Act does permit is an advance of defence costs, an indemnity within limits, and directors’ and officers’ insurance — and a well-drafted agreement uses those instead of an unenforceable exclusion.
For the executive side, the usual protections belong in the agreement: a restraint of trade, confidentiality, and assignment of intellectual property. Those are enforceable on their own terms — see restraints, confidentiality and IP. Where a departure is negotiated rather than litigated, a mutual separation agreement is the ordinary instrument; see getting it wrong.
Non-executive directors
A non-executive director holds the office and nothing more: no employment contract, no salary, no leave, and no unfair-dismissal claim if the shareholders decline to re-elect them. Their fees still need the section 66(9) special resolution.
The tax treatment follows the same logic. SARS accepts that a resident non-executive director is not a common-law employee, so the fees are not remuneration, no employees’ tax is deducted, and the limitation on deductions that applies to employees does not apply to them. For value-added tax they are treated as independent contractors, and must register once their fees exceed the compulsory registration threshold of R2 300 000. One limit is express:
This ruling does not apply in respect of non-resident NEDs.
A non-resident non-executive director therefore needs separate advice, and so does any non-executive who in practice does executive work — because at that point the question is no longer about the office at all, but about whether an employment relationship has come into existence on the facts. See employee or independent contractor?
Common questions
No. A director holds an office; an employee works under a contract. The Labour Appeal Court has said a director is not an employee of a company, although he or she can be an employee in addition to holding the office. An executive usually holds both, which is why the agreement must deal with each separately.
No. Remuneration for service as a director may be paid only under a special resolution approved by the shareholders within the previous two years. It is a rolling window, so refresh it — usually annually at the AGM. It governs fees for the directorship, not salary under a separate employment contract.
Not by itself. Removal ends the office. Ending the employment is a dismissal and must be fair. A clause terminating employment automatically on removal from the board does not oust that protection — parties cannot contract out of it, by automatic termination provisions or otherwise.
A resident non-executive director’s fees are not remuneration, so no employees’ tax is deducted and section 23(m) does not limit their deductions. For VAT they are independent contractors and register once fees exceed the compulsory threshold, currently R2 300 000. The ruling expressly does not cover non-resident non-executive directors.