Did you know that there are four main ways an employment contract can be terminated?

The four ways are:

1. Termination at the employer’s initiative – dismissal or constructive dismissal.
2. Termination at the employee’s initiative – resignation.
3. Termination by the effluxion of time – a fixed term contract.  
4. By mutual agreement.

It is the fourth of these that I want to discuss in this post.

Sometimes an employment situation just isn’t working out.

This situation can arise for many and varied reasons. 

Performance issues. 

Conduct Issues.

Unresolvable workplace conflict.

A mutual separation agreement is a consensual arrangement where both parties agree to terminate the employment relationship on agreed terms.

It is a legally binding agreement about the terms of separation that are usually recorded in a written document, typically called a Deed of Separation or a Deed of Release.

The typical provisions in a DoS or DoR include:

💠  Recitals or Background section

💠  Definitions

💠  Date of termination

💠  Whether there is to be a payment of money over and above the statutory and contractual termination entitlements of the employee – commonly referred to as an “𝘦𝘹 𝘨𝘳𝘢𝘵𝘪𝘢” payment, meaning “by favour”.

💠  Whether a statement of service or reference is to be provided and on what terms

💠  That the agreement is in full settlement of any claims the parties might have against each other and mutual legal releases of those claims.

💠  A Bar to proceedings and indemnification – ie. a party cannot try to take legal action in relation to any claim they have released the party from and will pay (indemnify) the other party’s costs if they try to pursue a claim they have released.

💠  Whether the employee has continuing obligations that survive termination – eg. restraints of trade, confidentiality of the employer’s confidential information, etc.

💠  Mutual confidentiality obligations – eg. both parties will keep the terms of the agreement secret, except for in agreed situations like seeking legal or accounting advice.

💠  Mutual non-disparagement obligations – ie. the parties promise not to bag each other out.

This is not an exhaustive list and, like all contracts, the parties can include any provision they like as long as it is not prohibited by some other law (eg. in many jurisdictions an agreement to release an entitlement to make a worker’s compensation claim is invalid and unenforceable).

We regularly negotiate mutual separation agreements on behalf of both employer and employee clients.

They are neither an appropriate nor possible option in some situations where employment has gone sideways. 

But, in many cases, they allow employers and employees to go their separate ways in a dignified manner and reduce legal risk for both the employer and employee.