Key Takeaways

  • Termination of employment contract can occur for various reasons, including resignation, misconduct, redundancy, or force majeure events.
  • Employees may be entitled to compensation or severance depending on the reason for termination.
  • Employers must follow legal guidelines to avoid wrongful termination claims, including adhering to notice periods and contractual obligations.
  • Termination for cause requires specific, documented misconduct, while termination without cause may require severance or additional compensation.
  • Special considerations apply to termination due to disability, death, or force majeure, including insurance and legal obligations.
  • Employers and employees can negotiate termination clauses to provide clarity and protect both parties.
  • Legal counsel is advisable to ensure compliance with employment laws and to resolve disputes effectively.

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.

Legal Considerations in Termination

When an employment contract is terminated, employers must comply with federal, state, and sometimes industry-specific laws. Key legal considerations include:

  • Notice Requirements: Many employment contracts specify a required notice period before termination. Failure to comply may lead to legal disputes.
  • Wrongful Termination Claims: If an employee is terminated in violation of anti-discrimination laws, retaliation protections, or public policy, they may pursue legal action.
  • At-Will vs. Contract Employment: In "at-will" employment, employers can generally terminate employees without cause, except where protected by law. Contracts with specific terms, however, require adherence to their stipulations.
  • Unemployment Benefits & Severance Pay: Employees may be eligible for state-provided unemployment benefits if they were terminated without cause, and some contracts require severance pay.

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.”

Constructive Dismissal and Forced Resignation

In some cases, employees resign due to employer behavior that makes continued employment untenable. This is known as constructive dismissal and can lead to legal claims if:

  • The employer significantly changes the employee’s role, salary, or benefits without agreement.
  • The workplace becomes hostile, including cases of harassment or discrimination.
  • The employer forces the employee to resign under undue pressure or without proper cause. If an employee can prove that their resignation was effectively a dismissal, they may be entitled to severance or damages.

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:

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.

Documentation and Due Process in Termination for Cause

Termination for cause must be well-documented to protect the employer from wrongful termination lawsuits. Key best practices include:

  • Progressive Discipline: Employers should maintain records of warnings, performance reviews, and disciplinary actions.
  • Internal Investigations: If termination is based on misconduct, a fair investigation should be conducted.
  • Opportunity to Respond: In some cases, providing the employee a chance to respond to allegations can prevent disputes.
  • Compliance with Employment Laws: Employers must ensure termination for cause aligns with federal, state, and contractual obligations.

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.

Severance Pay and Compensation in Termination Without Cause

Employees terminated without cause often have severance rights, depending on their contract and company policy. Considerations include:

  • Severance Packages: These may include a lump sum payment, continued health benefits, or outplacement services.
  • Non-Compete and Confidentiality Agreements: Employers may condition severance on employees agreeing to non-compete clauses or confidentiality terms.
  • Payment for Unused Benefits: Employees may be entitled to compensation for unused vacation days, bonuses, or commissions.
  • State Laws on Notice Periods: Some states require advance notice or financial compensation for mass layoffs.

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.

Special Considerations for Disability and Death

When an employee is terminated due to disability or death, certain legal and financial obligations may arise:

  • Disability Protections: Under the Americans with Disabilities Act (ADA), employees cannot be terminated solely due to disability unless reasonable accommodations cannot be made.
  • Insurance and Death Benefits: Employers may be required to provide life insurance payouts, final wages, or other benefits to the employee’s estate.
  • FMLA and Long-Term Leave: Employees on medical leave may have protections under the Family and Medical Leave Act (FMLA) or company policies.
  • Settling Final Payments: Employers should ensure compliance with state laws regarding final paychecks, accrued benefits, and outstanding expenses.

Frequently Asked Questions

  1. Can an employer terminate an employment contract early?
    Yes, but it must be done in compliance with the terms of the contract and applicable employment laws. If the contract does not include an early termination clause, the employer may face financial penalties or legal disputes.
  2. What is wrongful termination?
    Wrongful termination occurs when an employee is fired in violation of employment laws, including discrimination, retaliation, breach of contract, or violation of public policy.
  3. How much notice is required for termination?
    Notice requirements depend on the employment contract, company policies, and state laws. Some contracts specify a two-week or 30-day notice period, while others allow immediate termination.
  4. Is severance pay required by law?
    Severance pay is not required by federal law unless stipulated in the employment contract. However, some states and large companies provide severance as part of company policy.
  5. What should an employee do if they believe they were wrongfully terminated?
    Employees should review their contract, document any relevant events leading to termination, and seek legal counsel to determine whether they have grounds for a wrongful termination claim.

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