Termination Agreements: Rights, Obligations and Best Practices

Employment and termination • Published on September 30, 2025

Me Marie-Michelle Savard

A partner at Verreau Dufresne Avocats, Marie-Michelle Savard focuses her practice on labour law, representing businesses and individuals with rigour and a personalized approach. With litigation experience before several provincial and federal tribunals and courts, she stands out for her analytical mind, rooted in her scientific training, and her ability to find practical solutions to complex issues.

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In Quebec, most workers will go through one or more terminations of employment during their careers. Although laws govern this process, some situations, such as negotiated departures or dismissals, may require a clear written agreement between the employer and the employee.

This is where the termination agreement comes in: an important legal tool to avoid conflict, protect your rights and ensure a smooth transition. What amounts can or must be paid? What commitments can bind the parties after the contract ends? How do you negotiate a fair agreement?

Our labour law lawyers in Québec City and Lévis explain what you need to know to end an employment relationship properly, whether you are an employer or an employee.

Termination of employment: what does the law say?

Article 2085 of the Civil Code of Québec defines the contract of employment as follows: “A contract of employment is a contract by which a person, the employee, undertakes, for a limited time and for remuneration, to do work under the direction or control of another person, the employer.”

How does a contract of employment end?

Whether it is for a fixed or an indeterminate term, a contract of employment can end in different ways, including:

• By mutual consent between the employer and the employee;
• By a dismissal for serious misconduct or a serious reason;
• By the employee’s resignation;
• By retirement;
• By the employee’s death;
• By the expiry of a fixed-term contract;
• By a layoff.

Whether the termination results from a decision of the employer or of the employee, it is subject to several rules. Various criteria come into play, including the employee’s length of service, the nature of the job, labour market conditions and even the employee’s age. The reason for the termination is also a key factor in determining the conditions that apply to the end of employment.

Are you going through a termination of employment and wondering what your rights or obligations are? Our labour law lawyers are here to help you see clearly.

What is a termination agreement?

A termination agreement is a contract between the employer and the employee intended to govern the end of the employment relationship and protect each party’s interests. It generally takes the form of a transaction and release.

In other words, this written agreement, signed by the parties, makes it possible to settle disputes through mutual concessions.

What does a termination agreement contain?

A termination agreement can contain a wide variety of clauses, as long as they are clearly worded and freely accepted by both parties. The flexibility of this type of contract makes it possible to include terms suited to the needs and concerns of each situation. That said, the basic goal is always the same: to end the employment relationship completely and for good, by settling all the points in dispute and preventing any future challenge.

The basic elements:

• A summary of the facts surrounding the employment (length, nature of the position, circumstances of the termination);
• A list of each party’s commitments;
• A waiver of any claim related to the termination, provided the commitments set out in the agreement are honoured;
• The payment of a sum of money, if applicable. This amount may be provided for by law or agreed upon by the parties.

An agreement may also include specific clauses, such as:

• A general confidentiality obligation, or one covering the terms of the agreement;
• A non-disparagement clause prohibiting harm to the other party’s reputation;
• A penalty clause providing for financial penalties if the agreement is not honoured.
• If legal proceedings are under way, the agreement may provide for their withdrawal, where possible.

Do you have questions about a clause or need help drafting an agreement? Our lawyers are here to support you.

Signing the agreement: an obligation or a choice?

Neither the employer nor the employee can be forced to sign a termination agreement. Each party keeps the right to think it over freely before making a commitment. It is strongly recommended to consult a legal professional for informed advice before making a decision.

What are the consequences of a termination agreement?

Tax impacts

Paying a sum of money under a termination agreement can have significant tax consequences. Some amounts received must be reported to the tax authorities, namely Revenu Québec and the Canada Revenue Agency. Depending on how the amounts are characterized in the agreement, for example as damages or as salary, the forms to complete and the tax treatment may vary.

It is therefore essential to clarify these points with your lawyer or financial advisor so you meet your tax obligations and complete the required forms correctly.

Failure to honour the agreement

Once signed, the termination agreement requires both parties to honour their commitments. If one of them does not meet the conditions of the agreement, the other party can ask a court to homologate (approve) the agreement. This means that the court officially recognizes the agreement and gives it the same force as a judgment. From then on, the agreement becomes enforceable, which makes it possible to force compliance, for example by claiming the amounts owed through a bailiff.

An irrevocable agreement

Once signed, the agreement is generally irrevocable. Only certain specific situations allow it to be annulled, for example if the parties’ consent was not free and informed at the time of signing. It is therefore essential to understand all the implications of such an agreement before you commit.

Key points to remember

When employment ends, the employer must pay certain amounts, such as:

• Hours worked;
• Accumulated unpaid vacation;
• Reimbursable expenses;
• Retirement allowances;
• Bonuses owed.

In addition, in certain situations the employer must give the notice provided for in section 82 of the Act respecting labour standards (ALS). The employer must either pay it to the employee or let the employee work for the duration of the notice period. The length of the notice depends on the employee’s length of service:

Whether the employee is entitled to notice depends in particular on the reason for the termination. To learn more, see our article on serious misconduct justifying dismissal.
An additional amount, called “reasonable notice”, may also be paid by the employer based on factors such as age, length of service or employment status. However, the employee is not automatically entitled to this amount. Ask our lawyers whether you may be entitled to an additional amount.

Conclusion

Whether initiated by the employer or the employee, the end of employment is often a delicate and stressful time. It is important to keep in mind, however, that several legal obligations must be met, or there may be legal or financial consequences.

Our labour law lawyers are here to support you at every step: whether to negotiate or draft an agreement, or to resolve a legal dispute.

Contact our labour law lawyers to:

• Analyze your situation;
• Provide a legal opinion on your rights and obligations;
• Draft or review your termination agreement;
• Negotiate an out-of-court settlement to resolve such a dispute.

Note: The information above is general in nature and does not constitute legal advice. For advice on your particular legal situation, feel free to contact one of our lawyers in Québec City or Lévis.