Reviewing an exit agreement in Malta | Mifsud Bonnici Advisory

Who this is for: senior employees in Malta who have been given a draft agreement to end their employment. A short section at the end notes points for employers preparing one.

Short answer. An exit agreement usually does two things: it sets the terms on which employment ends, and it settles claims. Under the Maltese Civil Code a settlement of this kind, called a compromise, has the effect of a final judgment between the parties and cannot be set aside for an error of law. Read it as if it cannot be undone. Check who the parties are, what ends and when, what is paid and on what conditions, what happens to incentives, exactly what is being released, the restrictions and confidentiality terms, and what will be said about you.

This is a best-practice guide. Real agreements rarely arrive in a form that makes this easy, and what they leave out can cost more than what they say.

Best practice, and the reality

The guide works through an agreement clause by clause, as if you had time, the plan documents and a clear draft in front of you.

That is rarely the position. In most senior exits, some of the following get in the way:

A draft prepared by the employer’s lawyers, with a signing deadline of days and a payment conditional on meeting it.
A release drafted in the widest terms, covering roles and claims the discussions never touched.
Incentive treatment left to “the plan rules” or to later board discretion, rather than stated in the agreement.
A leaving reason chosen for the employer’s convenience, with effects on leaver status, the reference and the regulatory record.
Covenants restated or extended in a schedule, sometimes for longer than the original contract allowed.
Confidentiality and non-disparagement terms that bind you but not the people most likely to speak about you.
Tax treatment that depends on how payments are described, settled before your tax adviser has seen the draft.

Each of these can be changed, but rarely by asking for everything. It calls for judgement about which clauses matter most on your facts, what the employer can concede at little cost, and what is worth holding out for. Getting it wrong is costly: claims released for too little, awards forfeited, a covenant that keeps you out of your sector, or a reference and regulatory record that follow you.

The sections below set out the standard. Several end with a note on where it tends to break down.

Contents

What an exit agreement is in Maltese law
Parties and capacity
What ends, and when
Money: amounts, timing, conditions
Bonus, shares and options
The release
Confidentiality, restrictions and lawful disclosures
Announcement, reference and regulators
Property, information and handover
Signing, costs and what happens next
Notes for employers

1. What an exit agreement is in Maltese law

Most exit agreements combine an agreement to end employment with a settlement of disputes, actual or potential. The Civil Code calls the settlement element a compromise: a contract by which the parties, by means of something given, promised or retained, put an end to a lawsuit that has begun or prevent one that is about to begin.

Several consequences follow from the Code:

A compromise has, between the parties, the effect of a final judgment (res judicata), and cannot be set aside on the ground of an error of law.
It may be set aside for an error as to the person or as to the matter in dispute, and in all cases for fraud or violence.
A person may only compromise what they are capable of alienating.
A compromise does not extend beyond its subject-matter. A general renunciation of “all rights, actions and claims” applies only to what relates to the dispute that gave rise to it, and a compromise settles only the disputes the parties had in view.

That last point is a reason to read the description of the dispute, often in the recitals, as carefully as the release itself.

UK readers may be familiar with “settlement agreements” that must meet statutory conditions, such as advice from an independent adviser, to be valid. Those conditions are UK rules. They are not the Maltese test, and nothing in this guide should be read as importing them.

In practice. Because a compromise is so hard to undo, the time to test it is before signing. A signature given under deadline pressure, on terms not fully understood, is still a signature.

2. Parties and capacity

Is the employing company named correctly, with its registration number?
Should other group companies be parties, for example the one that operates your share plan or of which you are a director?
Who signs for the company, and do they have authority?
If you are also a director or shareholder, are those roles dealt with in this agreement or separately?

In practice. Drafts often name only the employing company, while the share plan, the directorships or the regulated approval sit with another group entity. A release given to one company may not bind another to anything.

3. What ends, and when

The termination date. Is it clear, and does it match what you were told?
Notice. Is notice to be worked, paid in lieu, or spent on garden leave? Does the agreement treat notice consistently with your contract?
The stated reason. “Redundancy”, “resignation”, “mutual agreement” or nothing? The description can affect incentive plans, references and regulatory records.
Benefits. When do health insurance, car, phone and other benefits stop?

In practice. The stated reason is often the clause given least attention and the one with the widest effects. A change of a few words can move you from bad leaver to good leaver, or change what the regulator is told.

4. Money: amounts, timing, conditions

List each payment and label it:

Payment	Is it already owed?	Source
Salary to the leaving date	Yes	Contract
Accrued, untaken leave	Yes	Contract and law
Notice or payment in lieu	Usually yes	Contract and law
Bonus for the year	Depends	Scheme rules, discretion
Additional payment	No, negotiated	This agreement

Then check:

When each amount is paid, and whether payment depends on your signing, on your returning property, or on a later event.
Whether amounts are gross or net, and who is responsible for tax and social security. Take tax advice on how payments are described and allocated before the agreement is fixed. I do not give tax advice.
Repayment or “clawback” clauses. In what circumstances could you be asked to return money?

For the payments the Act itself sets on termination, “wages” excludes overtime, bonuses, allowances, remuneration in kind and commissions. Anything more must come from your contract or from the agreement.

In practice. First offers tend to present amounts already owed as if they were concessions. Separating what you are owed from what is offered on top shows how much is really being paid for the release.

5. Bonus, shares and options

Incentive plans are usually governed by their own rules, not by your contract.

What leaver category will you be treated as? Many plans distinguish “good” and “bad” leavers by reason for leaving.
Which awards are vested, which are unvested, and what happens to each?
Is any treatment discretionary? If so, has the discretion been exercised, and is that recorded in the agreement?
Are there malus or clawback provisions that could still apply after you leave?
Which company and which governing law apply to the plan? Foreign-law plans may need advice from that jurisdiction.

The agreement should state the treatment of each award expressly, rather than leaving it to the plan administrator after you have signed.

In practice. Incentives are often worth more than the cash payment, and the employer’s draft often says least about them. Agreeing their treatment is usually where negotiation adds most value.

6. The release

The release is the clause by which you give up claims. Read it with section 1 in mind.

What is released? Claims arising from the employment and its termination only, or also claims as director, shareholder or under incentive plans?
Who is released? Only the employer, or also group companies, directors and employees?
Is it mutual? Does the employer also release claims against you?
What is carved out? Common carve-outs include payments under the agreement itself, accrued pension rights, claims for personal injury not known at signing, and the right to enforce the agreement.
Pending matters. If a claim has already been filed, does the agreement provide for its withdrawal, and on what terms?
Warranties. Are you asked to confirm that you know of no other claims, or that you have not breached your contract? A false warranty can lead to repayment.

In practice. Releases are usually drafted for the widest protection the employer can obtain. Narrowing the scope, adding carve-outs and making the release mutual are ordinary requests, and they are often agreed.

7. Confidentiality, restrictions and lawful disclosures

Confidentiality of the agreement. Who may you tell about the terms? Usually at least your spouse or partner, professional advisers and authorities.
Confidential information. Does the clause go beyond your existing duties?
Post-termination restrictions. Are non-compete, non-solicitation and non-dealing clauses reaffirmed, extended, narrowed or released? Is garden leave set against the restricted period?
Lawful disclosures. Under the Protection of the Whistleblower Act, a provision in an agreement between employer and employee is void in so far as it purports to exclude the Act, or to preclude or discourage the employee from making a protected disclosure. A well-drafted agreement says expressly that nothing in it prevents disclosures that the law protects or requires.
Non-disparagement. Is it mutual, and does it bind the company’s directors and senior staff, not just the company?

8. Announcement, reference and regulators

Announcement. Agree the wording of internal and external announcements, and of any client message.
Reference. Agree an attached reference, or the facts the employer will confirm on request. Note that the Act already requires an employer, at your request, to give a certificate of service stating the duration of employment, the nature of the work and, if you wish, the reason for termination and the rate of wages.
Regulators. If you held an approved or key function, ask how and when the regulator will be notified and what the notification will say.

In practice. These terms cost the employer little and matter a great deal to your next role. They are best agreed in writing, attached to the agreement, rather than left to goodwill after you have gone.

9. Property, information and handover

What must be returned, by when, and is your personal data on company devices handled properly?
Can you keep your phone number, personal files or a device, if agreed?
What handover is expected during notice or garden leave?
Are you required to resign as director of named companies, and is the company to file the necessary notices?

10. Signing, costs and what happens next

Is there a contribution to your legal costs?
How is the agreement signed: in person, electronically, as a public deed?
Is there a cooling-off or acceptance period?
What happens if a payment is late?
Are there obligations on either side after signature, and how will compliance be checked?

During negotiations, correspondence is often marked “without prejudice”. In Maltese practice the expression is used to keep settlement discussions out of later proceedings, and advocates are bound by their Code not to use negotiation content in court without the other side’s agreement. It does not, however, protect every communication automatically, and it does not make a proposed agreement valid.

11. Notes for employers

If you are preparing an exit agreement for a senior person, the same questions apply in reverse. In particular: describe the dispute being settled accurately, deal expressly with incentives and other roles, preserve lawful disclosures, agree regulatory notifications, and give the executive enough time to take advice. An agreement the other side understands is less likely to be challenged later. For employer-side advice, see Workforce restructuring.

How I can help

A guide can set out what to look for. It cannot tell you which clauses matter most on your facts, what the employer is likely to concede, or what your release is really worth. That is the work of an exit adviser.

I review and negotiate exit agreements for senior executives. Typically, that means:

reviewing the draft against your contract, incentive plans and covenants;
valuing what is offered against what you are being asked to give up;
identifying the changes that matter most, and the ones worth trading;
negotiating with the employer or its lawyers, or advising in the background if you prefer to lead;
agreeing the leaving reason, announcement, reference and any regulatory notification;
flagging tax points for your tax adviser before the terms are fixed.

The aim is an agreement you can sign with confidence: the value you are owed, a release that goes no further than it should, and no surprises afterwards. A short review before signing costs far less than a term you cannot undo. For employers preparing an agreement, I advise on the same points from the other side.

This guide is general information about Maltese law, not advice on any particular agreement. Do not sign or reject an agreement on the strength of it.

Next step: Ask for a review of your agreement. Read also: Preparing for an executive exit · Negotiation and settlement · Bonus, shares and options · Restrictive covenants · Full and final settlement.

The law changes, so please check the current position with an advocate before acting.

Reviewing a proposed exit agreement in Malta