“Effective Date”

It’s commonplace to refer in a contract to effectiveness of something or other—a merger, perhaps, or a registration statement. That’s unobjectionable.

But I’m dubious about using the defined term Effective Date in a contract to refer to effectiveness of that contract.

This occurs in various ways.

First, Effective Date is sometimes used to refer to the date stated in the introductory clause, as in this example—which I haven’t cleaned up, although I did change the names—from the SEC’s EDGAR database:

THIS MANAGEMENT SERVICES AGREEMENT (this “Agreement”) is made and entered into this 4th day of May, 2007 (the “Effective Date”) by and among Acme Holding Corporation, (“Acme”), Astute Advisors LLC (“Contractor”) and Don R. Jones (“Jones”).

I’d rather just refer to the date of this agreement. Why inflict an unnecessary defined term on the reader?

When a contract is dated by having the parties date their signatures rather than by including a date in the introductory clause (something I discuss in this blog post), one sees Effective Date used to refer to the date when all the parties have signed:

This Contract shall become effective (the “Effective Date”) upon the date this Contract is signed by both Parties.

But as I note in this blog post, I find it simpler to arrange matters so that in this context, too, I can use the date of this agreement.

Sometimes the parties use Effective Date to refer to a future date when some or other arrangement kicks in. For example, the following is from an employment agreement dated January 2004 and refers, presumably, to the date the employee will actually start work:

The term of this Agreement shall commence on the first day of the Company’s fiscal year commencing in the year 2004 (the “Effective Date”) and shall terminate on the last day of the Company’s fiscal year ending in the year 2007, subject to prior termination as set forth in Section 7 below (the “Term”).

But it’s misleading to tie effectiveness of the agreement to the date the employee starts work, as the agreement is effective once the parties have signed it. Instead, it’s the company’s obligation to pay the employee, and the employee’s obligation to work for that pay, that commences later, and that’s what I’d say in the contract. If you need a defined term to refer to that later day, I’d use something like Start Date.

Finally, sometimes you see Effective Date used in a contract to refer to some date in the past. For instance, the parties to a distribution agreement signed on March 31, 2007, might want sales from January 1, 2007, to be included for purposes of determining 2007 sales. It would be simpler and clearer to say as much instead of using the term Effective Date and defining it to mean January 1, 2007.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.