Mutual Termination Agreement of Employment in Malta

What is a mutual termination agreement and why use one

A mutual termination agreement (sometimes called a settlement or separation agreement) is a contract by which the employer and the employee agree, by mutual consent, to bring the contract of employment to an end on agreed terms, instead of the employer terminating unilaterally or the employee resigning. It gives both sides certainty as to the date of termination, any final payments, and the mutual release of claims.

The passages available on this topic principally address the treatment of employment contracts within corporate restructuring under insolvency legislation, rather than the ordinary contractual mechanics of a standard mutual termination between an employer and employee outside insolvency. Where a business is undergoing a preventive restructuring procedure, the re-negotiation and termination of contracts of employment continues to be regulated by employment legislation and other pertinent law, and is expressly carved out from the general regime for executory contracts under the Chapter 631, Chapter 631.

This means that, even where an employer is restructuring its affairs, any mutual termination of an employment contract must still be reached and documented in accordance with employment law and general contract principles; the restructuring legislation does not itself supply the terms of such an agreement.

Content and date of the agreement

A mutual termination agreement should identify the parties, the original contract of employment being terminated, and state clearly and unambiguously that termination is by mutual consent rather than unilateral dismissal or resignation. This distinction can matter for later disputes and for benefit entitlement.

The agreement should specify a precise termination date (the last day of employment), whether the employee is required to work through a notice period or is released from actively working while remaining formally employed (garden leave), and the date by which final wages, accrued but untaken leave, and any other sums are to be paid.

Where the employer is itself subject to a preventive restructuring order, any measures affecting employment conditions or contractual relations with workers remain subject to any applicable duty to inform or consult with workers or their representatives under the Chapter 631, Chapter 631, and any wages due remain a privileged claim that cannot be altered by a restructuring plan.

Severance and other financial terms

The passages available do not set out a statutory formula for severance or ex-gratia payments payable under a mutual termination agreement outside the insolvency context; readers should verify the current rules on notice pay, accrued leave and any statutory minimums directly against the applicable employment legislation before finalising figures.

Where the employer is a debtor under a restructuring plan, wages due to employees constitute a privileged claim over the debtor's assets, and no restructuring plan may alter or affect the ranking of that claim, as confirmed under the Chapter 631, Chapter 631. This protection is relevant if the mutual termination is negotiated in the context of a business in financial difficulty.

What the employee should negotiate

• A clear, agreed termination date and confirmation of whether notice is worked, paid in lieu, or waived.
• Full and itemised settlement of final pay, accrued but unused leave, and any bonus or commission earned up to the termination date.
• Confirmation of any severance or ex-gratia payment, its amount, timing, and tax treatment, to be verified against current employment and tax rules.
• A reference letter and agreed wording confirming the employment ended by mutual agreement rather than dismissal or resignation, which may be relevant to future job applications and to benefit authorities.
• Mutual release and confidentiality clauses, return of company property, and continuation (or waiver) of any post-termination restrictive covenants.

Effect on unemployment benefits

The passages available do not address the specific rules on eligibility for unemployment benefit following a mutually agreed termination of employment. Whether a mutual termination is treated in the same way as redundancy, resignation, or dismissal for benefit purposes is a matter that must be verified directly with the competent social security authority and the current social security legislation, as it can significantly affect the employee's entitlement and any waiting period.

Employees should request that the agreement record clearly that the termination was by mutual consent and, where relevant, obtain any documentation the employer is able to provide that may support a benefit application, while independently confirming the applicable requirements before relying on the agreement for that purpose.

Mutual Termination Agreement of Employment

MUTUAL TERMINATION AGREEMENT OF EMPLOYMENT

This Agreement is made on [date] between:

[Employer's full name and address / company registration number], ("the Employer"),

and

[Employee's full name, ID card number, and address] ("the Employee"),

together referred to as "the Parties".

1. Background
1.1 The Employee has been employed by the Employer under a contract of employment dated [date of original employment contract] in the position of [job title].
1.2 The Parties have agreed to terminate the said contract of employment by mutual consent, on the terms set out in this Agreement.

2. Termination Date
2.1 The Parties agree that the employment relationship shall terminate by mutual consent with effect from [termination date] ("the Termination Date").
2.2 [The Employee shall continue to work until the Termination Date. / The Employee is released from the obligation to attend work from [date] until the Termination Date, while remaining formally employed and receiving normal pay and benefits during this period.]

3. Final Payments
3.1 On or before [payment date], the Employer shall pay to the Employee:
(a) all outstanding salary up to and including the Termination Date;
(b) payment in lieu of [number] days of accrued but untaken annual leave;
(c) [any bonus/commission due, specify amount or formula];
(d) an ex-gratia/severance payment of [amount], subject to applicable tax and social security treatment, to be verified by the Parties before payment.
3.2 The Employer shall provide the Employee with a final payslip and any documentation required for tax or social security purposes.

4. References and Characterisation of Termination
4.1 The Parties agree that the termination of employment is by mutual consent and not a resignation by the Employee or a dismissal by the Employer.
4.2 The Employer shall provide the Employee with a reference letter in the form set out in Schedule 1 [or: to be agreed between the Parties], confirming the Employee's position, dates of employment, and that the termination was by mutual agreement.

5. Return of Property
5.1 The Employee shall return to the Employer, by no later than the Termination Date, all property belonging to the Employer, including [laptop, keys, access cards, documents, other items].

6. Confidentiality and Restrictive Covenants
6.1 The Employee shall keep confidential all confidential information of the Employer acquired during employment.
6.2 [Any post-termination restrictive covenants from the original employment contract shall continue to apply / shall not apply, as follows: [specify].]

7. Mutual Release
7.1 Subject to full performance of this Agreement, each Party releases the other from any further claims arising out of the employment relationship or its termination, save for any rights expressly preserved by this Agreement or by mandatory provisions of law.

8. Governing Law
8.1 This Agreement is governed by the laws of Malta.

Signed:

_______________________
For and on behalf of the Employer
Name: [name]
Position: [position]
Date: [date]

_______________________
The Employee
Name: [name]
Date: [date]

Fill in all bracketed details, adjust the notice/garden-leave and severance clauses to the actual terms agreed, and verify current notice, tax and social security/unemployment benefit rules before finalising the payment and characterisation clauses.

Frequently Asked Questions

Related Guides

This template is based on the Malta legislation in the Europaius corpus. Verify the current wording before use; this does not constitute legal advice. Legal Advisor · Europaius MT