Employee termination letter: How-to guide

At some point in the life of every organization, managers will need to fire employees. There may be any number of reasons for such decisions, from downsizing and misconduct to breaches of company policy or performance issues.

Without a written employment agreement or a specific state-granted right, employment is considered “at-will” and can be terminated with or without cause or notice. If employment is at-will, a termination letter can be used to end the employment relationship, setting forth the details and reasons for the termination and specifying any subsequent severance package.

Employee termination letters must be clear and concise and should include all relevant information about the arrangement. If the employee has a contract with the company, employers should be aware of and fulfill any obligations they may have under that agreement before looking to terminate an employee. In some cases, early notice may be required, and a well-crafted termination letter can provide that notice while protecting the employer from lawsuits down the road.

This article gives an overview of employment termination letters, things to take care of while creating termination letters, and key elements it should have.

Important aspects to note while creating a letter of termination 

Know your company policies regarding termination

If you are firing an employee, it is essential to conduct the termination carefully, following all internal policies and local laws. Improper or careless actions may subject your company to unlawful termination lawsuits, costing the organization considerable time and money. In the end, you may face large fines and be forced to rehire the terminated employee.

Conduct due diligence

Before sitting down to draft a termination letter, review all records relating to the employee in question, including personnel files, letters, employment agreements, job performance records, and evaluations. Ensure you understand the reasons for the termination and the legal or contractual requirements you must follow.

Employment is usually at-will unless a specific agreement or law says otherwise. “At-will” employment can be terminated by either party, at any time, with or without cause. If you aren’t sure whether the employment relationship was at-will, review all of your correspondence with the employee, signed orientation materials or handbooks, union rules, personnel files, and employment agreements. If any of these contain phrases like “you will be terminated only for good cause,” the employment may not be considered “at-will.”

Seek legal guidance, if required

Even if the employment was at-will, it can’t be terminated for unlawful reasons (e.g., jury duty, personal bankruptcy, reports of unlawful activities, etc.). Talk to your human resources department or seek legal counsel with an employment lawyer if you are unsure whether or not the employment relationship is at-will or your reasons for termination are lawful.

Provide compensation as per the law

In many areas, if employment is terminated “with cause,” the employer does not need to provide notice or pay any additional compensation. However, the employer must be sure that these causes are spelled out (e.g., drug use, absenteeism, sexual harassment, etc.).

If termination is “without cause,” an employer is usually required to provide formal notice and may be required to pay a certain amount to the former employee. The required amount of notice and compensation varies from state to state, industry to industry, and employee to employee.

If you are required to give termination notice in a certain way or within a certain period of time (e.g., some employers are required to give 60 days notice of closings and layoffs under federal law), make sure you provide notice according to these requirements. Review your local laws for additional details.

Complete all the checks of your company’s termination process

If the terminated employee brings a lawsuit, the employer may be forced to defend itself against charges that the dismissal was illegal. Ensure you have satisfied all contractual and statutory requirements before starting the termination process. Keep copies of all relevant documents – these may be needed to establish the legitimate reasons for the termination. For example, if the termination was based on poor performance, keep notes of any supervisor reviews or warnings given to the terminated employee.

Pay any due wages

The employer must pay any wages owed to the employee promptly after termination. Many states have specific laws about how much time the employer has to make this payment. Review your state and local laws for additional information about requirements in your area.

Provide reasons for a non-disclosure clause

A termination may start certain obligations under a non-disclosure agreement. If you include a non-disclosure clause in your letter, remember that many states require such clauses to be “reasonable.” What is considered reasonable varies from state to state, and you should speak with a human resources professional in your area to see what limitations may apply.

Get a release from the employee when offering severance pay

Although not required by law, employers may decide to give severance pay to a terminated employee.

Severance packages are simply money paid at the time of an employee’s departure from a company. Severance pay is usually offered if the termination is a result of layoffs, job elimination, or mutual agreement.

If you are offering severance as part of the termination, make sure that the employee provides a release in return for this payment. A release is the employee’s promise not to bring a lawsuit against the company because of his or her termination.

Severance pay provided in exchange for a release must be money over and above what the employee is already entitled to. For example, if the employee’s agreement already provides that he or she will receive two weeks’ pay at the time of termination, the employee must receive both those two weeks’ pay and severance pay.

Be transparent and professional

An employee termination letter should not include anything biased, discriminatory, or unfair. Include basic facts and the specific reasons behind the termination. Language should be professional and courteous, and you should never use insulting, derogatory, or demeaning content: remember, these letters may be used as evidence in a court of law.

Keep it practical and factual

Keep the language as objective as possible, and look for measurable, verifiable, equitable, and understandable means of explaining your decision.

You are not measuring the employee’s personality – you are measuring their level of performance. Focus on specific criteria like absenteeism rate, the number of incomplete projects, or the number of customer complaints. After you’ve written the termination letter, review it to ensure that all relevant points have been included, but make sure it stays short and factual. Unnecessary details may provide more opportunities for rebuttal or dispute.

Remove employee’s access to company’s software after termination

After the termination, disable the employee’s passwords and modify those of any close co-workers. Remove the employee details from company records. If the terminated employee knows any common company passwords, it may be a good idea to cancel or change them as well.

Collect back what’s company property

Before forwarding the employee’s final paycheck, make sure he or she has returned all company property, including company cell phone, documents, equipment, company car, keys to any storage unit, procedure manuals, credit cards, ID cards, and access badges.

Involve a witness

Ask the employee to sign a copy of the letter, acknowledging that it was received. If he or she refuses, have a witness sign indicating that he or she witnessed that refusal. In any event, it is a good idea to have a witness from the company with you when you hand over the letter and during any exit interviews conducted.

Maintain records

Make several copies of the letter, and give one to the employee at the end of the exit interview. Place an additional copy in the employee’s personnel file.

An employment termination letter is a sensitive document, and writing a termination letter from scratch is even more daunting. To make this process a tad easier, you can refer to sample termination letters or rely on an online template. LegalZoom offers a professional and easy-to-use termination letter template. Fill out the template by answering certain questions and download the document for free. 

If the situation is complicated or you feel there may be a legal battle about the termination, it is always good to contact an attorney to help you draft the letter that meets your needs.

Key aspects of an employee termination letter

The following instructions will help you understand the terms of an employee termination letter.

Introduction

Start the letter by providing the details of your company and the effective date of the termination.

Reason for termination

Explain why you are terminating the employee. If the termination is “for cause,” this may be for reasons such as general misconduct, poor performance, alcohol use, or absenteeism. Describe any warnings that were given to the employee or any opportunities your company gave the employee to fix the problem.

Return of company property

On this part, mention the effective date; the employee should pay back all outstanding loans and return all company property. If the employee has any loan, those details should also be mentioned. This section also notes that the employee must leave the company with all his or her belongings on the termination date. You can also mention any limitations or prohibitions on the terminated employee’s access to company property after this date.

Employee benefits

This segment states that the employee will not receive vacation benefits after the date of termination, and his or her final paycheck will include accrued salary, vacation pay, and other amounts owed. You need to mention the date on which the employee will receive his or her final paycheck.

Employee insurance benefits

Provide the date on which the employee’s health insurance coverage expires. After the termination, the employee can keep this coverage at his or her own expense but must opt for this within 60 days. The employee’s other insurance coverage will end on the last day of the month of the effective date.

Severance packages

This part discusses the severance package your employee will receive if he or she qualifies under a company policy or an employment agreement. This payment will be made in exchange for the employee’s promise to keep the information confidential and to give up the right to bring a lawsuit against the company or its employees.

Mention the amount of severance pay that will be given and the time period for which it will be made. If you include this provision, be sure to get the employee’s release note.

The employee release note is an essential element of your agreement: it is your employee’s promise not to sue the company or its employees for anything relating to their employment or termination, including discrimination claims. Note that the employee can still make a claim against the company if it isn’t related to the termination.

Miscellaneous

In this section, you can add other miscellaneous clauses you want to include. You can ask your terminated employee to keep the company’s confidential matters confidential even after termination. You may, for example, want to include this provision if your employment agreement includes clauses titled “Confidentiality,” “Non-Competition,” or “Non-Disclosure.”

There can also be an optional provision that gives the employee the right to appeal the termination (i.e., explain that it wasn’t fair or permitted under the applicable employment contract). State the number of days the employee has to make their appeal.

Note that if a new company is checking the employee’s references, your organization will only provide details about dates of employment and job title. Your company will not disclose an employee’s confidential information, and the reason for termination won’t be provided unless the law requires such disclosure. It is almost always a good idea to limit the information provided to outside companies: statements that damage a former employee’s ability to get another position could generate costly and time-consuming lawsuits.

Signature

The employee should sign and return a copy of the letter to your organization. Ensure that a copy of the signed document is kept in the employee’s personnel file.

Frequently asked questions

What's an employee termination letter?

Things sometimes work out differently than we hope, including jobs. Whether your reason concerns downsizing, performance, or something more severe like a policy violation, you may need to let an employee go. An employee termination letter is a formal document issued by an employer to communicate the end of the employment relationship with an individual. This letter includes key details such as:

• Employee name and position
• Reason for termination
• Last day of work
• Information on benefits
• Instructions for returning company property

Basically, the purpose of the termination letter is to provide clear and official notice of the employment termination, ensuring transparency and compliance with legal and organizational requirements.