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What is an effective date?

An effective date is the date on which legal rights or obligations become binding between two or more parties. Effective dates arise in a broad range of circumstances.

For example, contracts often include language stating that the entire contract becomes operational on a specific date. This date can be in the future, if the parties so agree. Sometimes a written contract specifically provides that the contract will become effective on the date of signing, without specifying exactly when that date will be. If the written contract does not specify an effective date, it becomes effective when signed by all parties (note: this rule can be different under the Uniform Commercial Code).

A contract can also have multiple effective dates, depending on the terminology used by the drafting lawyers and the meaning of “effective date” employed. Let’s look at a couple of examples. An insurance contract might be entered into by the parties on January 1, but provide that the effective date of the insurance coverage begins on February 1. Thus, the insured’s obligation to pay was created by the contract on January 1. However, the insurer is not obligated to start providing insurance until February 1.

In a similar fashion, an employer and employee might enter into an agreement on January 1 which immediately limits the employee from disclosing confidential information to others. However, the contract may also provide that with regard to starting work and receiving salary, the effective date of the agreement is February 1.

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