Crafting a Contract Termination Letter: Guidelines and Sample Template

What is a contract termination letter?

An official contract termination letter is an employer formally informing their employee that they are being relieved. This notification typically includes the cause for dismissal, any severance or additional benefits received by the terminated individual, the date of their last paycheck disbursement, and other pertinent information associated with ending employment.

Useful Read: Contract of Employment: A Comprehensive Guide for Managers

How to write a termination letter

Terminating an employee is a difficult task, and ensuring they don't feel used or demoralized is essential. If the disciplinary processes have been managed correctly, the staff member should know that their job could end.

Set up a brief meeting with them before sending out any official 'termination of employment letters so that you can inform them face-to-face about this crucial decision.

At times, you may be required to let go of employees temporarily - an action commonly known as furloughing. It is a mandated unpaid or partly paid period off work where the employee involved can usually obtain unemployment and other benefits like health coverage.

Several factors could lead to this method, from cost reduction to organizational restructuring. When such scenarios arise within your organization, you should promptly inform the impacted personnel with an ‘employee furlough’ letter.

To ensure a positive, compliant end to your employment relationship, the letter should be written with considerable thought given to their tone and legal compliance. Doing so will mitigate the potential litigation risks and create an atmosphere that leaves no room for hard feelings.

So, here are some things to pay attention to:

• When considering the termination of an employee, it is essential to speak with a lawyer to ensure you are following all legal requirements. In some countries, specific regulations require ample notice periods and/or severance pay upon dismissal. Furthermore, if it's a layoff or furlough situation – different laws come into play, so make sure you do thorough research ahead of time.
  
  Useful Read: What is Statutory Redundancy Pay? A Guide for UK Employers
  
  
• Determine the final day of employment with their supervisor or department head before furloughs or terminations are initiated.
  
  
• To ensure a smooth transition, gather all applicable policies that take effect when an employee is terminated or furloughed and include them in the termination letter.
  
  
• Consider our sample letters as a baseline, yet be sure to bring your own custom-tailored tone. Be respectful while also retaining professional directness. If you can, have another HR colleague review the letter and provide feedback on its content.

Contract termination letter template:

Dear [employee_name],

I’m sorry to inform you that as of [termination_date], you’ll be no longer employed with [company_name]. As discussed, we think this is the best decision because of [insert reason for termination]. [This is the final step in our disciplinary process/ a decision we made after the end of your Performance Improvement Plan launched on _date.]

From [termination_date] on, you won’t be eligible for any compensation or benefits associated with your position. Please return [company property that must be returned] before [date] to the Human Resources office.

Until your termination date, you can receive your full salary and be compensated for unused vacation days. Furthermore, we will provide an additional severance pay of [amount]. You can expect a separate letter containing further details about the compensation or anything else related that may pertain to you.

Remember that you must abide by the non-compete, non-solicitation, and confidentiality agreement you signed. All information related to our customers, employees, or other parties should be removed from all personal devices and documents immediately upon leaving.

If you have questions or clarifications, I’m at your disposal for up to [five] working days after your last day of employment.

We wish you the best of luck.

[Your name and signature]

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A full termination letter example

Dear Mr. Sam,

I’m sorry to inform you that as of 12/4/2024, you’ll be no longer employed with Acme Inc. As discussed, the reason behind this is your reduced performance over the past six months. We made this decision after the end of your Performance Improvement Plan, which we launched on 012/04/2022. 

From Dec. 3, you won’t be eligible for any compensation or benefits associated with your position. Please return your swipe card, company cell phone, and laptop to our HR office by 5 pm on Dec. 3.

You are entitled to your salary until Dec. 3, and we’ll compensate you for your remaining vacation days. We’ll also provide severance pay that will amount to two monthly salaries. You’ll receive a separate letter with the complete compensation details and information about your health coverage (as per Consolidated Omnibus Budget Reconciliation Act or COBRA).

Remember that you must abide by the non-compete, non-solicitation, and confidentiality agreement you signed. All information related to our customers, employees, or any other parties should be removed from all personal devices and documents immediately upon leaving.

If you have questions or clarifications, I’m available for up to five working days after your last day of employment.

We wish you the best of luck.

[Name emlpoyer]

Employee furlough letter sample:

Dear [employee_name],

I regret to tell you that due to current business circumstances, your role will be on furlough from [date] to [date]. We hope that we'll be able to bring back your employment status upon the conclusion of this unprecedented time.

Here’s what to expect:

• During this period, the company will [not provide any payments/provide a x% reduction in your salary], and you must also take an extended break from all working duties.
• If you are enrolled in your employer's health or car insurance, the company will sustain these benefits.
• Depending on the particular criteria, you may qualify for unemployment benefits. Get in touch with your [state's employment department] to learn more about how to apply.
• Retain your current PTO balance and take advantage of this opportunity to use it if desired.

We will strive to bring you back as quickly as possible. If there are any questions or concerns, please don't hesitate to contact [me/HR] or [manager_name].

We wish you the best of luck.

[Your name and signature]

A full furlough letter example

Dear Mr. William,

I regret to tell you that due to current business circumstances, your role will be on furlough from 12/4/2024 to 15/4/2024. We hope that we'll be able to bring back your employment status upon the conclusion of this unprecedented time.

Here’s what to expect:

• During this period, the company will [not provide any payments/provide a x% reduction in your salary], and you must also take an extended break from all working duties.
• If you are enrolled in your employer's health or car insurance, the company will sustain these benefits.
• Depending on the particular criteria, you may qualify for unemployment benefits. Get in touch with your [state's employment department] to learn more about how to apply.
• Retain your current PTO balance and take advantage of this opportunity to use it if desired.

We will strive to bring you back as quickly as possible. If there are any questions or concerns, please don't hesitate to contact Mr. Brownie or James.

We wish you the best of luck.

Conclusion

Notice periods vary depending on the nature of your job and the industry you work in. If you have any questions or concerns regarding a notice period, it is important to speak to a lawyer or Human Resources representative to protect yourself.

In addition, if you are asked to leave immediately and given no notice period, legal remedies may be available to you. Ensure you understand the notice period that applies to your job and the options available if it is not followed.

By understanding these aspects, you can ensure that any changes in employment will be carried out fairly and concerning both parties, giving the employee sufficient time to prepare for the transition and allowing the employer to staff their business appropriately.