What is a Termination Agreement?

Mary McMahon
Mary McMahon

A termination agreement is a legal form which is signed at the termination of an agreement or arrangement. This term is most commonly used in reference to termination agreements which are used when an employee is released from employment, but the term can also refer to an agreement which terminates a lease or another type of contract. Before signing any forms upon terminating an agreement, it is critical to read them very closely, as there may be clauses which are unexpected or surprising.

A termination agreement is signed when an agreement has reached it's end.
A termination agreement is signed when an agreement has reached it's end.

In the case of an employment termination agreement, the employer presents the agreement at the time that an employee is separated by being fired or laid off. Employees may also negotiate such agreements when they leave voluntarily. The agreement, also known as a severance agreement or separation agreement, sets out the rights and responsibilities of both parties so that everyone understands what is involved in the termination.

Severance agreements set out the rights and responsibilities of both parties so that everyone understands what is involved in the termination.
Severance agreements set out the rights and responsibilities of both parties so that everyone understands what is involved in the termination.

On the part of the employer, the agreement might guarantee provision of severance, temporary extension of health benefits, and other terms. The employee may be asked not to seek employment with competing firms for a set period of time or to comply with other terms. It is important to note that a termination agreement can include clauses which ask employees to waive their rights. If an employee signs such an agreement and later attempts to sue for benefits, wrongful termination, or other reasons, the agreement may bar the employee from doing so.

When an employee is offered a termination agreement, she or he should ask to take it home for review. Employees cannot be compelled to sign documents and they are well within their right to request an opportunity to look a proposed agreement over. It is advisable to consult an attorney to confirm that the agreement if reasonable. An attorney may also have recommendations for changes which the employee might want to consider.

Other termination agreements should be reviewed with equal care. If there is a push to sign a termination agreement, it can be a sign that there is something in the agreement which the person doing the pushing does not want the person doing the signing to think over with care. Some things to look out for are clauses which waive the right to sue, restrictive clauses which limit future activities, or clauses which seem to conflict with clauses in other paperwork related to the same agreement.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Discussion Comments


I was laid off today. Our company's HR manager and my supervisor handed me such a document and told me that I was legally required to sign it because I agreed to do so in my initial employment contract. I knew that was blatantly false so I refused.

I was concerned about a vague and unusual provision stating that I must inform any future employer of the terms of my employment at this company upon request.

The HR manager then said I wouldn't get my severance if I didn't sign it. In this case, at least, he was within his rights. I called his bluff though and said I was fine with that.

Then he started trying to reason with me, almost to the point of begging, assuring me that the vague provision I was concerned about was only intended to ensure that future employers were aware that I had a non-disclosure agreement with this employer. Yes, really.

I eventually decided to go ahead and sign it, simply because the wording was such that I knew no court would ever enforce such a ridiculous provision. I think he was more concerned about going home (it was the end of the day) and didn't want to have to spend time making changes and printing out a new one (though I forced him to waste plenty of time as I slowly, slowly read it and objected to any nitpicky thing I could find).

In the end, it was really just a standard "we'll give you this money if you promise not to sue us for anything" contract. They might have been concerned that I could file an ADA claim against them for discriminatory practices that I believe was the real reason for the termination. Either way, I wasn't planning on suing them anyway, plus his tone had become much more conciliatory, so I went ahead and signed the damn thing.

Sorry, I just needed to get that off my chest. I do have a question, though: Is it legal to include in a contract a provision that requires a signatory to agree to and sign a future contract? Are there any circumstances in which such a provision would be enforceable?


@RambleWoods - That type of clause is often noted as leaving your 'book of business' with the company when you are leaving.

If that is part of your termination agreement form, be very careful how you respond to clients that ask to come over to your new company with you. You certainly don't want your termination to turn into a lawsuit.


A common clause among employee termination agreements in sales based jobs is not only agreeing not to take your knowledge to work for for a competitor, but more specifically, not taking your list of clients with you when you leave.

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