1. What is employee termination?
It may seem a basic term, but we want to ensure you know exactly what it means.
Employee termination refers to the situation when an employee’s work and employment contract comes to an end.
Termination may be:
when the employee leaves your organization based on their own will or has reached retirement age.
In this case, the employee must hand the employer a resignation letter and provide a notice period.
when you, as an employer, terminate his contract due to several reasons. We include the discharge with cause(due to poor performance, misconduct, or other violations). On the other hand, there is the discharge without cause when you, as an employer, are terminating the contract, usually due to economic circumstances-lay-offs imposed by external factors.
There is a third option, a different case of ending an employment contract, which also falls into the involuntary type:
End of (business) contract:
when an employer that hires a short-term employee/consultant/partner decides not to renew the employment contract beyond the initial duration.
These are the cases where the employer has an obligation to provide the employee with a suitable termination letter.
2. What is a termination letter and content?
Termination letters are also known as a pink slip, contract termination letter, letter of separation, or notice of termination of employment.
They are a form of written document that notifies an employee they have been terminated and explains the next steps they need to take.
The reasons for ending an employment contract can be various, ranging from incompetence, misconduct, poor performance, layoffs, or any other justifiable basis.
Regardless of the reason for termination, every such letter should include the following aspects:
- Names and all employee information(name of the terminated employee, of the company and the manager in charge, plus maybe employee ID and position/department)
- Date of termination
- Type of termination(with or without cause)
- Arguments for termination with supporting evidence(anything you believe it’s relevant)
- Next steps for final compensation, health insurance, and benefits to complete the offboarding process
- A list of company items that the employee is compelled to return(company laptop, badge, keys, etc)
- A reminder of the agreements that the employee signed, such as non-disclosure agreements
- HR contact information for further queries.
We have another great tip for you! A termination checklist, so you don’t skip any step in this process.
As mentioned above, there are three types of involuntary termination; therefore, the letter you send the employee should reflect the types of termination individually.
1. Termination without cause
Terminating a contract without a cause is usually called a layoff and is generated by economic circumstances outside the employer’s control. The most recent example is the Covid 19 pandemic, when many businesses had to close their doors, leading to many employees' termination. Employers from many industries had to terminate their employees, but it was very visible in hospitality.
2. Termination with cause
We face this type of termination when there is poor performance, misconduct, or bad behavior.
Regarding an underperforming employee, you need to ensure that before terminating him, you follow the internally established steps for helping him improve, such as offering a mentor/coach, meetings for feedback, or refreshment training.
If misconduct is the cause for termination, we speak about behavior that is against the internal regulations, the code of ethics or even breaking the law, such as stealing something from the company or fraud.
3. End of business contract
This is more of a formality since such a contract has an established natural end, so both parties know the relationship will end.
These situations include contracts with temporary employees, consultants, partners, or freelancers.
3. Importance of a termination letter
We want to point out a few crucial points for which you should not skip sending a termination letter to a departing employee:
- A termination letter represents a written document containing all the issues involved in this process, most importantly, the dismissal date. Such a document is proof that your company has acted legally and in all fairness toward the terminated employee, and this way, you can easily avoid potential disputes in court.
Especially if we speak about termination due to poor performance, it’s a great way to show that the employee has been given more than one chance to improve and remain in your organization.
- A termination letter can serve as a timeline with the needed steps for offboarding. The leaving employee will know exactly how to proceed regarding compensation, benefits, or other sensitive aspects.
Plus, it’s a sign you respect your employees until the final moment of collaboration, and you show them respect.
- In some cases, such a letter will help the departing employee to apply for unemployment.
- Suppose you are dealing with terminating a high-level executive. In that case, such a letter is a soft opportunity to remind them of NDAs or other non-compete clauses they have previously signed and are still in effect after the termination.
4. How to write a termination letter?
There are no strict rules for writing a termination letter, as long as the essential information is included, but we have compiled some tips on best practices for creating such a document:Use the right tone
It’s important to be professional and respectful. Do not use sarcastic language or mean words. Remember that even though that employee leaves the company, they depend on that income, so termination is an unpleasant moment.
You should avoid phrases such as:
Make sure you have all the information you need
- Look on the bright side
- It was a great time to retire, anyway.
Before writing the letter, collect all the data you need so the document is comprehensive.Specify the clear reason for termination
The reason for termination is obviously the most important segment of the document, so make sure you are honest and clear and do not use ambiguous words.
You should clarify that your decision is final, even though you mention that discussions for explanation can take place if the employee wants this.Provide guidance for the onboarding process and offer the details for a contact person
Describe the offboarding process clearly, and ensure the terminated employee knows what steps should be taken moving forward.
Plus, assign a person from HR to be the contact in case more information is needed and for the exit interview. For more tips on exit interviews, check out our article on this topic.
Extra tip! When deciding to terminate a contract, do not base it on a comparison between that employee and others. Use your business’s standards, targets, and behavioral expectations (as laid out in your employee handbook) as the reference point.
5. Templates of termination letters
Theory is great, but we also need some practice. Let’s see 2 templates you can use when needed. We will focus on one for termination with cause and the other without cause.
Download Word Template
Template - letter of termination without cause
Dear Mr.[Name of the employee]
This document is to notify you that your employment with [Your Company Name] will end as of [Last day of work]. This decision is definitive and cannot be changed.
The following are the grounds for why you were let go.:
Current economic conditions have caused a significant decline in sales, generating a 20 percent workforce reduction at our company. Unfortunately, your position, as many in your department, is included in this reduction and has been eliminated.
Note that you will receive your final paycheck after your last day and payment for your remaining leave.
Your health insurance coverage will remain in force 2 months after your termination becomes effective.
We will be needing you to return the company vehicle, key card, laptop, and cell phone on your last day of employment.
You have signed a variety of agreements that forbid you from revealing confidential information, so just be mindful of that. Please take a look at the copies attached.
Contact [HR contact person] if you have any queries about this letter or the terms of your termination.
[Name of manager]
Template - letter of termination with cause
Dear Mr.[Name of the employee]
This letter is to let you know that as of [Last day of work], your employment with [Company name] will come to an end. This decision is not reversible.
Your employment was terminated for the following performance reasons:
On May 7, 202X, you were in performance coaching (meetings and mentoring) and were told that if the employment relationship with us was to continue, your performance would need to improve. You were given a second warning on April 30, 202X, and told that if your performance didn't improve in the following 60 days, your contract will be terminated.
Unfortunately, you have failed to meet the performance targets agreed upon with your supervisor. Your employment has been terminated as a consequence.
Your last check for this month will arrive in the mail in seven days.
Your medical benefits will continue to apply for 30 days.
Before the end of the day, we will require you to return the company vehicle, the key card, the notebook, and the smartphone.
Please contact [HR contact person] if you have any queries regarding pay, benefits, corporate property, or policies you have accepted.
[Name of manager]
There are many reasons an employment relationship ends. As we mentioned, the employee can leave for a better opportunity or be let go for many reasons.
The important thing is that both parties are aware of the reason, and the employer is responsible for writing the correct termination letter.