How to Use a Termination Agreement in Australia

Ending an employment relationship is never easy, but with the right process and paperwork, you can protect your business and part ways respectfully.

A well-drafted termination agreement gives you certainty about the exit, wraps up entitlements, and reduces the risk of future claims.

In this guide, we’ll walk you through what a termination agreement is, when to use one, what to include, and a practical step-by-step process for employers in Australia.

What Is A Termination Agreement (And When Should You Use One)?

A termination agreement is a written contract that sets out the terms on which an employee’s employment will end. It’s often used to record a mutual separation and include a release of claims so both parties can move on with clarity.

In Australia, many employers document a mutual exit using a deed that includes a release and confidentiality provisions. You’ll also hear this called a “mutual separation agreement”, “settlement agreement” or a “deed of release”. For context, our overview of Employee Separation Agreements explains how these arrangements work.

Common situations where a termination agreement makes sense include:

• Mutual exits where the relationship isn’t working and both sides want to move on.
• Performance or conduct issues that can be resolved commercially rather than through a contested dismissal.
• Redundancies where you want to offer additional benefits in exchange for certainty and a release.
• Senior executive departures involving negotiated notice, restraint and confidentiality terms.
• Probationary exits where a clean, respectful separation is preferred (see our guide to Termination During Probation for process tips).

Important: a termination agreement should not be used to pressure an employee into resigning or to avoid your obligations under the Fair Work Act 2009 (Cth) or an award/enterprise agreement. Any agreement must be voluntary, lawful and supported by value on both sides.

What Should A Termination Agreement Include?

Every business and exit is different, but most employer-friendly termination agreements cover the essentials below. Many employers use a Deed of Release and Settlement format because deeds can be more enforceable for certain promises (like releases) even without extra consideration.

• Parties and Role: Full legal names, position title and employment start date.
• Termination Date: The agreed end date for employment.
• Notice or Payment In Lieu: Specify whether notice will be worked or paid out. Our employer guide to Payment In Lieu Of Notice explains the rules and risks.
• Final Pay and Entitlements: How wages, accrued but untaken annual leave, leave loading (if applicable) and long service leave (if applicable) will be paid.
• Redundancy Pay (if applicable): Any statutory or additional redundancy payments, plus confirmation that consultation obligations have been met.
• Bonus/Commission: Any earned but unpaid incentives and how they will be calculated.
• Release of Claims: A mutual or one-way release covering employment and its termination, to reduce the risk of future claims (e.g. unfair dismissal, general protections, underpayments).
• Confidentiality: Ongoing obligations to protect your confidential information and trade secrets.
• Return of Property: Requirements and timing for returning devices, access cards, documents and data (including confirmation of deletion from personal devices/cloud).
• Restraint and Non-Solicit: Reasonable post-employment restraints to protect client relationships and your workforce (scope, geography and duration should be carefully tailored).
• Non-Disparagement: Mutual obligations not to make negative statements that could harm reputation.
• Intellectual Property: Confirmation that all IP created in the course of employment is owned by the business and properly assigned.
• Garden Leave (if relevant): If you want the employee to stay away from work during notice while remaining employed and paid, clarify the terms; see our overview of Garden Leave.
• References/Announcements: Agreed wording for internal and external announcements, and whether you’ll provide a reference.
• Tax/Super: How payments will be taxed and any superannuation treatment consistent with law and ATO rules.
• Warranties: Employee confirms they’ve returned all property, disclosed issues and haven’t breached obligations.
• Governing Law and Jurisdiction: Typically the state or territory where the employee worked.
• Execution: If using a deed, include correct execution blocks. If using an agreement, ensure consideration is clear.

If you need a simple, tailored document, our Deed of Termination service covers the core terms and can be adapted for your circumstances.

What Laws And Risks Do Employers Need To Consider?

Termination agreements sit alongside, not instead of, your legal obligations. Keep these risk areas front of mind:

National Employment Standards (NES), Awards and Enterprise Agreements

Ensure you meet minimum notice, redundancy, and consultation obligations. Where an award or enterprise agreement applies, follow any process requirements (for example, redundancy consultation steps and redeployment considerations).

Unfair Dismissal and General Protections

Even with an agreement, an employee may still allege the termination was unfair or adverse action was taken for a prohibited reason. A robust release helps, but it must be supported by genuine, voluntary agreement and reasonable terms. Avoid any conduct that could be seen as coercion or misrepresentation.

Discrimination and Adverse Action

Decisions tied to protected attributes (e.g. race, sex, disability, age) or workplace rights (e.g. taking leave, making a complaint) carry elevated risk. Frame your business rationale clearly and keep fair, contemporaneous records.

Redundancy

If the role is genuinely no longer required (not a performance issue), follow a proper redundancy process and pay any required redundancy pay based on service and business size. Mislabelled “redundancies” invite claims.

Notice And Payment In Lieu

If notice isn’t worked, ensure the agreement clearly covers payment in lieu, and address practicalities such as access removal and handover. Our employer guide on Payment In Lieu Of Notice breaks down what to include and common pitfalls.

Superannuation and Tax

Some termination payments attract PAYG withholding and may have special tax treatment. Superannuation generally applies to ordinary time earnings, not most termination-related lump sums, but get payroll/tax advice specific to your payments.

Execution And Enforceability

Releases and restraints are technical. Use clear, tailored drafting and the right instrument (often a deed) to maximise enforceability. Give the employee reasonable time to consider the offer and encourage independent legal advice-this supports the agreement’s validity.

Step-By-Step: How Employers Can Run A Termination Agreement Process

1) Map Your Exit Strategy And Legal Basis

Clarify the reason (performance, conduct, redundancy, mutual fit) and the outcome you’re proposing. Check award/enterprise agreement coverage and any policy requirements.

2) Prepare Your Documentation

• For performance or conduct matters, retain notes, warnings and evidence in case the employee doesn’t agree and you proceed with a formal process.
• For redundancy, prepare the business case and consultation plan.
• Draft a termination agreement or deed that fits the situation. Many employers streamline this with an Employee Termination Documents Suite covering letters, deeds and checklists.

3) Offer A Without-Prejudice Discussion

Invite the employee to a confidential discussion. Explain your concerns or business reasons and outline the proposed terms at a high level (e.g. notice/payout, additional ex gratia, release, reference, timing).

4) Provide The Draft Agreement And Time To Consider

Give the document in writing, allow a reasonable period to consider (often several days), and encourage independent legal advice. Avoid pressure tactics or artificial deadlines that could undermine the agreement.

5) Negotiate Commercially (If Needed)

Be open to reasonable tweaks-clarifying reference wording, staged handover, or minor payment timing adjustments can help reach a pragmatic deal while protecting your core interests.

6) Execute Correctly

Have the agreement signed by both parties using appropriate execution blocks. If it’s a deed, ensure it’s executed as a deed. Keep a final, fully signed copy and note any conditions (e.g. payment within X days of execution).

7) Manage Handover And Access

Confirm the final day worked (or garden leave details), remove system access on time, and secure return of all business property. An inventory and return confirmation help close the loop.

8) Process Final Pay Promptly

Pay wages to termination date, accrued annual leave (and long service leave if applicable), notice or payment in lieu, and any agreed ex gratia amounts. Pay on time and issue payslips and separation documents as required.

9) Close Out Post-Termination Obligations

Remind the former employee of confidentiality, restraint and non-disparagement obligations, and keep an eye on compliance. Address any client communications using agreed announcements.

Alternatives And Related Employer Documents

Depending on your situation, you may use complementary or alternative documents alongside (or instead of) a full termination agreement:

• Deed Of Release And Settlement: Ideal where you want comprehensive releases and confidentiality-see our practical guide to Deeds of Release.
• Deed Of Termination: A streamlined instrument focused on ending the contract on agreed terms-our Deed of Termination service covers this.
• Mutual Separation Agreement: Used where both parties want to document exit terms-our overview of Employee Separation Agreements outlines the key clauses.
• Payment In Lieu Of Notice Letter: Where notice won’t be worked, align the agreement with a clear PILON letter; the PILON guide explains what to include.
• Garden Leave Direction: If notice will be worked off-site, make sure your direction is consistent with contract terms and policy; see Garden Leave.
• Probation Exit Pack: For early-stage exits, combine a fair process with a short-form agreement-our article on Termination During Probation sets out the steps.
• Comprehensive Suite: If you’d like templates, letters and checklists in one place, consider an Employee Termination Documents Suite tailored to your business and awards.

Practical Tips To Get The Balance Right

• Lead with respect: A calm, respectful process often delivers better outcomes and lower legal risk.
• Document the business rationale: Keep clear notes supporting the decision and the commercial terms offered.
• Tailor restraints: Narrow, well-targeted restraints are more likely to be enforceable than broad, boilerplate provisions.
• Be clear on timing: Set out dates for handover, access removal and final pay to avoid misunderstandings.
• Encourage independent advice: This helps demonstrate the agreement is voluntary and informed.
• Use the right instrument: For releases and confidentiality, many employers prefer a deed format; for simpler exits, a short agreement can work.

Key Takeaways

• A termination agreement is a practical way to document a mutual exit, finalise entitlements and include a release so everyone can move on.
• Your agreement should cover the termination date, notice or payment in lieu, final pay, confidentiality, return of property, restraints and a clear release of claims.
• Compliance still matters-follow the NES, any award or enterprise agreement, and avoid conduct that could be seen as coercion or adverse action.
• Run a fair process: provide a draft, allow time to consider, encourage independent advice, and execute correctly (often as a deed).
• Choose the right tool for the job-consider a Deed of Release and Settlement, a focused Deed of Termination, garden leave directions or a probation exit pack as needed.
• Getting tailored legal documents in place can reduce disputes and protect your business during and after the exit.

If you’d like a consultation on preparing or reviewing a termination agreement for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.