Termination Letter

What is a termination letter?

Employment contracts normally state that the employer can terminate the employment by giving notice to the employee in writing. This letter can be used to satisfy this requirement. It is suitable for use in a number of situations, including where the reason for termination is poor performance, misconduct and redundancy. 

It allows the employer to choose to pay in lieu of notice (“PILON”) or to put the employee on garden leave. It sets out the payments and benefits that the employee will receive on termination, and it reminds the employee about the ongoing obligations in their employment contract - for example those relating to confidentiality, return of company property and post-termination restrictions (also known as “restrictive covenants” or “non-competes”).

For termination of a self-employed consultant’s engagement, where the consultant is an individual or where they are engaged through a limited company, see Termination letter - Consultant. 

Why is a termination letter important?

If the contract states that notice of termination must be given in writing, a letter should be given to the employee to terminate the employment. Even if there is no requirement for written notice, it is good practice to confirm the termination in writing, to avoid any disputes about whether notice was properly given. 

The termination letter is also important to explain the reason for termination, the employee’s entitlements on termination and also to remind the employee of any ongoing contractual obligations that apply to them (for example relating to confidentiality or post termination restrictions).

If the employer has the contractual right to pay the employee in lieu of notice (also called “PILON”), and if the employer wishes to take this option, this should also be documented in writing and the best place to do this is in the termination letter. The same applies if the employee is being put on garden leave.

What are the common pitfalls of a termination letter?

1. Not having a termination letter
   If no termination letter is issued, there may be a dispute about whether notice has actually been given, and therefore when the employment will terminate. There may also be a dispute about what was agreed with regards to working arrangements during the notice period.
   
   
2. Not including all of the relevant information in the termination letter
   If the employer has the contractual right to pay the employee in lieu of notice (also called “PILON”), and if the employer wishes to take this option, this should also be documented in writing and the best place to do this is in the termination letter. The same applies if the employee is being put on garden leave.
   
   It is also always sensible to remind an employee of their post-termination contractual obligations (like keeping the employer’s information confidential, and not using or disclosing it at any time in the future).

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