Terminating Employment Contract Letter: The Definitive Guide

A Guide to Termination Letters

A termination contract letter is a tool employees and employers use to part ways. It may seem standard on the surface, but it is an important instrument in making sure terms of the termination are abundantly clear to both parties. The signatories should all have a copy of the document. Failure to put termination terms in writing can lead to costly misunderstandings. Depending on the union status of the employee, federal, State and employee handbook policies may come into play when employment is terminated. What are your rights? Your obligations? The termination contract goes a long way in setting those parameters. Termination contracts are relatively simple, merely stating the names of the parties and the terms of their relationship. The format may differ. Both the employer and the employee must sign in the spaces provided. The document is often signed in lieu of executing a non-compete agreement. The employer may request the employee submit to a simple background check, drug screening, and/or DMV/degree verification . The letter should be written in neutral terms. This is not a document through which the employer or employee is to air their grievances. It is a notice that work coming after the submission date is not to be completed by the employee. It then absolves the employer of further liability to that employee. The duration of the notice period can be anywhere from one week to three months, although there are instances in which the entire process is performed in short order. In most termination contracts, the employer continues to meet the employee’s health care coverage, offering to pay the difference for premiums that are more than what the employer ordinarily pays. The rejection of termination contract letters may make it difficult to collect unemployment, although not all employers follow this. Regardless, an employer should exercise caution to avoid an excess of complexity. Too many caveats to the contract can cloud the intention of the parties and become the basis of an action.

The Must-Have Elements of a Termination Letter

When crafting a termination contract letter, specific details are crucial to its effectiveness. Well-written contract termination letters should always include clear explanations about the reasons for your decision, any confidentiality clauses, severance or compensation being offered and any relevant legal information should also be included. Based on your business and its specific incidents of termination, make sure to include other necessary information. Signing the letter without determining the information your employee needs to know in the next few months will more than likely lead to litigation. The brief overview below describes key areas to address in the termination letter: Comprehensive explanation for the termination. This means that the letter should cover everything: Any severance package to which the employee is entitled under your company’s policy or any professional contract the employee may have signed. These items must be explicitly addressed in the termination letter. Any requests for confidentiality or even non-disparagement should be clearly defined in this letter. Regardless of the letter’s lack of legal enforceability, it is considered a best practice to have it in the termination contract letter. All relevant legal information. There are many laws governing employer-employee relations. An employer must be aware of any applicable laws and document them in a termination contract letter.

The Legalities You Should Know About in a Termination Letter

When crafting the termination contract letter, employers should be aware of certain legal implications and requirements. Most jurisdictions have employment laws that govern employment termination, including the eligibility for unemployment benefits. Terminating an employee requires thinking through whether the employer provides severance, health insurance, or other specific benefits after termination. Depending on the project, the termination letter may be subject to the applicable statutes of fraud. When in doubt, consider consulting with legal counsel before finalizing your termination contract letter. While such a consultation will usually be contrary to the goal of limiting legal fees for the project, it can be a valuable investment.

Mistakes that are Commonly Made

Common Mistakes to Avoid When Writing a Termination Contract Letter
As with any professionally drafted document, being specific is of the utmost importance. Your letter of termination should offer very clear reasons why you are terminating the agreement and what your expectations are for the response to the letter. Vague language can leave you open to confusion on the other side and create an environment where both parties have different expectations. Although you don’t know what the other party will think or do, you can keep expectations from getting out of hand by being as clear as possible in your letter.
In terms of content, don’t forget to focus on the impact of the way the agreement has played out so far. Here’s where that precision in your writing will make a difference: you want to get out as many details as you can as to the agreement terms not being met of in what way the other party has not abided by the outcomes you were both expecting.
Most businesses know the law, and most don’t anticipate ending an agreement with a contract. However, it’s very important to be careful of the legal implications in your termination letter. If you’re legally required to provide some sort of notice or amount of time prior to ending the contract, be very careful to follow through.
There may be instances where it’s within your best interest to overlook the law, though. For example, if you were in a contract with a manufacturer and you’ve just learned that your product has become potentially toxic or faulty for any reason, by all means, terminate the agreement! Don’t leave yourself liable for faulty products – in these cases, it’s likely worth it to ignore the formalities of legal compliance and get yourself out of the deal. However, be cautious about breaking a contract with the other party only because you feel like it or because of what you’ve learned about his or her opinions in the industry – stay as professional and neutral as possible throughout.
Consider having legal counsel review your letter before sending it. He or she will be able to advise you on issues you might not have thought of that could have negative consequences for your business later on, whether legally or practically.

Termination Letter Samples and Templates

Template 1: Performance-Based Termination Letter
[Your Name/Company Name]
[Your Address]
[City, State, Zip Code]
[Email Address]
[Phone Number]
[Date]
[Employee Name]
[Employee Address]
[City, State, Zip Code]
Dear [Employee Name],
After thorough evaluation and careful consideration, it has become increasingly evident that your performance has not met the expectations outlined in your employment contract. Although we have conducted several reviews and performance improvement plans, there has been no significant progress to justify an ongoing employment relationship.
It is with a heavy heart that I must inform you that your employment with [Company Name] will be terminated effective [termination date]. You will receive all due compensation and entitlements. Please arrange for a final meeting with [HR Representative Name] to discuss the exit process and company policies on returning company property.
We appreciate your contributions during your time at [Company Name]. If you require an employment reference in the future, do not hesitate to contact us .
Regards,
[Your Signature (if sending via post)]
[Your Printed Name]
[Your Designation]
Template 2: Company Downsizing Termination Letter
[Your Name/Company Name]
[Your Address]
[City, State, Zip Code]
[Email Address]
[Phone Number]
[Date]
[Employee Name]
[Employee Address]
[City, State, Zip Code]
Dear [Employee Name],
We regret to inform you that due to the current economic climate, [Company Name] has had to make significant changes to its employment structure. After a meticulous review and consultation process, we have identified your role as one that will be made redundant as part of our downsizing program.
We want to assure you that this decision has not been an easy one, but it has become necessary for the welfare of the entire organization. Your termination date will be [date]. All necessary compensation, entitlements, and unused leave will be paid up to the termination date and with the termination of your employment.
We thank you for your services and wish you all the best in your career endeavors. For any details regarding the severance package and exit processes, please contact [HR Representative] at your convenience.
Sincerely,
[Your Signature (if sending via post)]
[Your Printed Name]
[Your Designation]

How To Deliver a Termination Letter in Steps

Once you’ve drafted a termination contract letter, you need to decide on the timing, setting, and method of delivery. The best termination letter is of little use if it is not well-timed and does not put your best foot forward.
Deciding on when to deliver the termination letter
From your perspective as the employer, unless there’s an immediate risk to people or property, it’s best to have the employee finish that day so nothing gets destroyed. Employees do often go postal for such things as pay they believe they should have received, travel reimbursements, or simply out of anger. Even if you have a non-solicitation provision, they may take customers or potential customers while they’re angry. They may delete files, deny access to your website, or hold information you need hostage.
If the risk isn’t that bad, the best timing is to have the employee leave no more than a week after you’ve delivered the news. This will give the employee just a little time to want to be civil and not burn any bridges.
For severe misconduct, the timing may be immediately. In such a case, look at the specific facts of the situation to make sure you’re giving him or her the opportunity to leave voluntarily without too much time to retaliate.
Deciding on where to deliver the termination letter
Just as with deciding on the timing, if it’s for severe misconduct, you might want the employee to leave immediately. But also, as before, consider the worst case scenario and be prepared that the termination letter doesn’t lead to retaliation. You should have prepared in advance for what happens in the worst case.
Otherwise, I strongly recommend that you do these things:
Deciding on how to deliver the termination letter
If there’s severe misconduct, it would be better than nothing to deliver the termination letter by e-mail. That way, you have a record that the letter was delivered.
If you terminate the employee immediately or have the news delivered by someone, then make sure that you have the termination letter sent via e-mail as well.
If you get a waiver and release agreement as part of the termination process, consider sending the agreement as part of the termination letter. Be clear that the agreement is only for the employee if the employer asks him or her to sign it.

How to Deal with the Reactions

When an employee receives the termination contract letter, their initial reaction may dictate how the process unfolds. Dealing with a range of employee reactions effectively is crucial to executing the termination process smoothly and maintaining a respectful relationship with the departing employee. Here are some common responses you might encounter:
"Okay, I understand."
This is the most straightforward scenario, and it may be the outcome of your careful handling of the initial conversation with the employee. In this case, the employee may just sign the contract and move on. However, it’s still important to follow up with the employee as soon as possible to see if they truly are okay with the termination terms.
"I’m going to contact the union/company representation."
A union representative or company representative should not speak with an employee until you obtain a signed termination contract. At that point, you should review the terms with the representative, ask them for their input and let them know that the employee will be leaving on the date in the letter unless something changes.
"I’ll be discussing this with my lawyer."
The incoming signed contract should include a lawyer approval clause. This clause gives the employee 7 days to have the document reviewed by their lawyer. If they don’t have a lawyer, try to connect them with someone they can trust to give them legal assistance. Find out if the employee has had some exposure to the process of getting any claims ready, whether or not they have had a serious injury in the workplace in the past.
"My union/association/company representation will be discussing this with my lawyer."
Again , get the incoming signed contract reviewed, and consult with the employee about reaching out to the union representative for a cohesive plan of action.
"I’m not okay with the dollar amount on the offer."
In this situation, try to find out what the employee considers an acceptable amount. Are they concerned about the loss of benefits? Are they looking for an extended notice period? How were the damages for the termination estimate calculated? The goal is to come up with a number that works for both parties.
"Why is the company firing me?"
If the termination letter does not include a list of the misconduct, which should be addressed from the outset, it will be difficult to come up with a response to this question. For future cases, try to include the misconduct and disciplinary history in the employment contract if you’re going to be firing an employee. Your goal is to answer this question without creating a domino effect of unintended consequences.
"The contract states that I have to return my company property and sign this letter of resignation."
Assess how much company property the employee has. In order to keep the process moving, the company could agree to drop the claim for the return of company property if the company can be provided with a full explanation of the issue. In this situation, I think that it is efficient to discuss the matter with the employee and bring the issue to resolution without wasting the employee’s time or the company’s legal resources once the contract is signed.