Early Termination of Employment Contract
The early termination of employment contract is what occurs when an agreement for employment is ended before the scheduled term stipulated in the contract.3 min read
Updated July 14, 2020:
Early Employment Contract Termination Overview
The early termination of employment contract is what occurs when an agreement for employment is ended before the scheduled term stipulated in the contract, if there is any such term. This early termination may occur for any number of reasons, both at the will of the employer and the employee. In most cases, this termination will not be desired, but it can have some benefits attached to it, nonetheless.
Reasons for Termination: Resignation
Resignation is a kind of employee-instituted termination. When this occurs, an employee will usually only receive his or her salary through their last day of work along with any accrued vacation days. However, if an employee has a contractual entitlement to guaranteed bonuses, commissions, profit-sharing, or other benefits, they may receive it as well.
Also, termination procedures may be different depending on the reason for the employee’s resignation. If an employee is deemed to have resigned “without good reason,” which might include leaving to take another job, then the employee may get the treatment stated above. However, if the resignation is “with good reason,” which means a reason beneficial to the company, such as to help with a corporate restructuring, the employee may receive preferential treatment, such as a generous severance package often known as a “golden parachute.”
Reasons for Termination: Termination for Cause
Termination for cause is a type of termination administered by the employer which usually occurs after an employee has conducted themselves especially poorly as per pre-arranged agreement. Poor action that could warrant a for-cause termination might include:
- Intentional misconduct.
- Conviction of a felony.
- Job abandonment.
- Material breach of contract.
What constitutes a for-cause termination can vary in detail. It is commonly subject to intense negotiations relating to what constitutes the “cause”, if that “cause” will require due notice, and if there will be a chance to remedy the ill caused before termination occurs.
Regardless of negotiation, almost every for-cause termination will not allow the employee to receive compensation except for the salary entitled to them, up until their last day of work.
That said, an important detail often overlooked by employers is that what constitutes “cause” does not include whether or not the employee has a poor attitude, is not producing enough money for the company, is not a “good fit,” or any other such judgment call. Rather, for-cause termination requires that specific negative actions have occurred, and thus it is a means of protecting the employee from arbitrary termination by their employer.
Reasons for Termination: Termination Without Cause
Termination without cause is the opposite of termination with cause, and it is also far more common. Termination without cause does not necessarily mean there was no cause whatsoever for an employee’s termination, but rather that the termination was more of a judgment call by the employee, as opposed to the result of a specific, pre-agreed scenario being met.
Without-cause reasons for termination might include:
- The employee not working as hard or up to the quality that the employer would like.
- A better employee coming along.
- General, company-wide downsizing.
- The employee displaying a negative attitude towards their job.
- The employee not being a “good fit.”
Or, essentially, without cause termination could include any reason that is not considered to be “with cause.” This gives the advantage to the employer in many respects, but for the employee it does mean they will receive the full value of their contract, not just the value up until their day of termination. Thus, if the employee is under a long-term or especially lucrative contract, the employer may be unwilling to terminate “without cause,” save for the most onerous offenses or the lowest quality performance. A fixed-term contract will then amount to what is essentially a severance payment. An employee may be able to turn this to an advantage by negotiating a lump-sum payment upon termination.
Reasons for Termination: Termination for Disability or Death
Termination that is out of the hands of both employee and employer, such as for disability and death, can be negotiated, as well. In these cases, the details of concern will be whether the employee will receive disability payments or the employee’s family will receive compensation in case of their death.
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