What is an employment termination agreement?

The end of a working relationship can sometimes be an emotional time. This is normal in the face of change. However, unlike the process of quitting or firing someone, termination by mutual agreement can be an amicable way of ending a contract of work.

Definition: Employment termination agreement

An employment termination agreement is an agreement between employee and employer to end an existing employment contract without giving prior notice – although the agreement must be made mutually. An employment termination agreement is an official business document that is used to formally record that all parties included in a contract have agreed to its cessation.

Unlike the structure of a good job reference, an employment termination agreement needs to follow state laws and regulations to be effective. Read on to see what the advantages and disadvantages of termination by mutual agreement are.

What is the difference between an employment termination agreement and being fired?

An employment termination agreement is an arrangement which both sides, employer and employee, agree on to end a period of employment. Being fired, by contrast, is a one-sided decision. Similarly, if an employee decides to quit their job and hand in their notice they are making a one-sided decision. Even if the other party does not want to be fired or to lose an employee, quitting or being fired are effective ways to end employment without the other party agreeing to it. In contrast, a termination by mutual agreement only becomes effective if both parties agree on its terms.

Advantages and disadvantages to termination by mutual agreement

As an alternative to being fired or quitting, both parties who signed an employment contract can also agree to terminate their employment relationship together with a termination agreement. This has several advantages for both parties involved.

Advantages for the employer

Firstly, a termination agreement allows an employer to express their wish not to continue employing a person whom they cannot or do not want to employ for whatever reason, without creating an unpleasant work environment. Although firing someone is necessary in some cases, it doesn’t allow for existing employees to feel as if their jobs are secure. Discussing a termination of employment by mutual agreement means that your employees will feel more respected.

Advantages for an employee

However, not only an employer benefits from this mutual agreement. Employees have more time to discuss their options and come to terms that suit them before leaving the workplace. A termination agreement gives employees time to work out their next job move. It is a less abrupt form of employment termination than being handed the notorious pink slip.

Disadvantages for the employer

One of the disadvantages for employers using a termination by mutual agreement is that it could take longer to sort out the administrative details of letting someone go. This requires additional resources such as time and staff to work out the details of an agreement.

Disadvantages for the employee

Coming to an agreement with an employer is certainly better than being fired, but it could also be a long and drawn-out process for a member of staff. If an employee needs to leave work quickly or start a new job for whatever reason, the negotiations involved in drafting a termination by mutual agreement could take longer than handing in your notice in an ordinary manner.

Legal Information on employment termination agreements

Employment termination agreements are legal documents which should be drafted by someone who is qualified to do so. This may be a person within a company’s human resources or legal department. Two important considerations to take into account when creating the agreement include: the time when an agreement becomes effective, and whether or not there is a so-called “cooling-off” period included in the contract.

When does an employment termination agreement become effective?

Due to its nature of being an agreement, the terms can be specified and agreed upon by both parties, within reason. This may involve a negotiation process. If you have set a date within your agreement, that is when it becomes effective. There are always technical elements such as hand delivery or delivery by an agent which may trigger the agreement. It’s important to go through this with a qualified professional if you are in any way unsure. Any such aspects must be outlined in the agreement.

How much time do you have to back out of a contract?

Part of most contracts is that you have a so-called “cooling-off period”. What this means is that you have the option to back out of your current contract, and reconsider your needs. You may be able to add terms or adjust others that do not suit your needs. This needs to be done within a specified period of time. You may be aware of such terms for other contracts like your phone or electricity supplier, but some people are not aware that this is also the case for termination by mutual agreement.

Sadly, it is not as straightforward as having a “one rule fits all” solution when it comes to a termination by mutual agreement. Different US states have different laws and ways of regulating contracts. This means that even if you have experience with termination by mutual agreement in the workplace, but have moved state, you may need to get legal counsel to ensure you are taking the right steps.

Employment termination agreement: What does one look like?

As mentioned above, the rules and regulations differ from state to state. If you are drawing up a termination agreement, you’ll have to bear in mind the specific nuances of a state’s laws to ensure that your agreement is effective and legal. That is why it would not make sense to provide a template for all states: some have the same and others have very specific requirements which need to be adjusted individually. You may want to ensure that your boss gives you a job reference after termination. In general, the terms and conditions of an employee’s departure should be made clear in a way that suits both parties. That is the nature of a termination contract by mutual agreement.

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