Whether it’s because of poor performance, misconduct or downsizing, there may come a time when you have to fire an employee. However, terminating an employee is a sticky situation that can have serious legal consequences if you don’t navigate it properly. To maintain legal compliance, learn how to properly communicate an employee termination and what to include in a formal termination-of-employment letter.
What is a termination letter?
When you fire or lay off an employee, you should provide them with an official termination letter. A termination-of-employment letter, also known as a notice of termination or a pink slip, is a formal document that informs the employee about the end of their employment. It includes details regarding the reason for their termination, how to collect their final compensation and any next steps they must take (e.g., return property, sign up for COBRA health insurance).
In most instances, the federal government does not require companies to provide termination letters, but there are some exceptions (e.g., labor unions, certain businesses governed by the WARN Act). Some state laws and business policies outlined in your employee handbook may also require you to provide a termination letter.
“If the employee has a special arrangement with the employer, whereby the employee can only be terminated for cause – which is sometimes the case with executives – the reasons for terminating the employee should be expressly set out in a letter or other written documentation to the employee,” Dani Fontanesi, founder and managing partner of Fontanesi Legal Consulting, told business.com.
Regardless of legal obligation, providing a termination letter is a best practice for any business. It is also a good idea to maintain internal documentation for future reference. Document the termination in writing, and keep it in the employee’s personnel file.
“Documenting the termination, including the reasons for termination, helps protect the employer in the event that the employee files a complaint with a government agency, like the Employment Development Department in California or the U.S. Department of Labor, or files a lawsuit,” Fontanesi said.
Even though you can’t prevent an employee from filing a complaint or a wrongful termination lawsuit, maintaining proper documentation can help protect your business and limit your exposure if you end up having to defend your decision to let the employee go.
What should be included in a termination letter?
The specifics of your employee termination letter will vary depending on your unique circumstances. However, there are a few basics that every termination letter should convey:
- Contact information. Include the name of the employee being terminated, as well as the names and contact information of the employer representatives the employee may need to contact, like the HR manager.
- Dates. List the date of termination, as well as any other relevant dates that document the reason for termination.
- Criteria. Make it clear that the employee is being permanently terminated, and list the reason for termination. You can note the specific measures that were taken before termination (e.g., warnings, probationary periods, suspensions).
- Payments. Include information about how and when the employee will receive their final payment. Most businesses are required to give the employee their final paycheck on their last day of work.
- Benefits. Outline any pertinent information regarding employee benefits and rights (e.g., severance pay, unemployment benefits, COBRA coverage).
- Next steps. List details about the employee’s next steps, such as what company property they need to return and whom they should return it to.
- Legal obligations. Remind the employee of any legal obligations they are bound by, like nondisclosure, nonsolicitation or noncompete agreements.
“Include only the reasons that led to the termination decision, presented in a factual manner, rather than attempt to create a laundry list of all the transgressions of the employee during their employment,” Almes said. “It is important to consult legal advice when preparing to terminate an employee, but especially when there are other factors, such as age, religion, race, gender or leave requests that could lead to the inference of other motives for the termination.”
What are some termination of employment letter templates?
Fontanesi and Almes created the following employee termination letter templates for your reference. Keep in mind that you will need to customize each template to suit your specific employee termination.
Termination letter template one
To: [Employee Name]
RE: Termination of Employment
Dear [Employee Name],
As discussed in our meeting today, due to [insert reasons for termination, if appropriate; otherwise, omit], I regret to inform you that your employment will be terminated effective [date].
Your final paycheck, in the amount of [$XX], will be paid to you by [date], which will include all accrued but unused vacation and paid time off (if applicable) [amend based on state laws and company policies]. You will also be receiving a COBRA election notice with your separation paperwork.
Please ensure you return all company property to [employer contact], including [identification cards or badges, access codes or devices, keys, laptops, mobile phones, credit cards, electronically stored documents or files, and physical files] and any other company property and information in your possession.
[If the employee has any continuing obligations following termination, like a noncompete agreement or confidentiality obligations, insert language referencing those obligations, and remind the employee that he or she must comply with those obligations following his or her termination.]
Please keep us updated on any changes to your address or phone number. If you have any questions, please feel free to contact me [or insert alternate contact] at [the contact information below]. We wish you the best in your future endeavors.
[Acknowledgment page follows]
[You can also include the following optional acknowledgment.]
Please acknowledge your receipt of this letter below.
[Name of employee]
Termination letter template two
Dear [Employee Name],
This letter is to inform you that your employment with [Company] is terminated as of today, [date].
You were informed on [date] of [the company’s] investigation of allegations that you were [reason for termination]. After investigation, it has been determined that your behavior violated [Section XX] of the employee handbook, a copy of which you signed on [date]. You were provided with written warnings on [date] that such behavior was inappropriate and attended additional training on [date].
Please return your [company-issued laptop, building access card and office keys] to [employer contact] by [date and time].
Your final paycheck will include salary through [date] and compensation for all unused personal time and will be paid to you on [date], your regular payday. You will receive information by mail regarding your benefits.
Please keep in mind that you signed a nondisclosure and confidentiality agreement on [date].
If you have any questions, please contact [employer contact].
Additional termination letter templates
You can access various termination-letter templates online for free, but keep in mind that you will likely need to customize them to fit your specific situation. Here are some additional options to get you started:
- Betterteam provides four sample termination letters that differ based on your reason for termination. For example, there are letters for basic termination without cause, termination without cause (staff reduction), termination for cause (attendance) and termination for cause (poor performance). You can also download a free termination letter in Microsoft Word format, and no email address is required.
- LawDepot allows you to create a free employment termination letter through a customization process. You fill out information about the parties involved, termination details, compensation, final details and signing details. To download and print the final termination letter, you must sign up for a free or premium license.
- LegalZoom helps you create an employee termination letter. Simply fill out key information, like the date, employee and company details, reasons for termination, payment and property details, and benefits. After you create a LegalZoom account, LegalZoom will generate a sample letter that you can download.
- Rocket Lawyer lets you create a termination letter by answering a few questions. You can save progress on your letter and finish it on any device to download and print it at any time. You can sign in to a Rocket Lawyer account and invite others to sign the document to make it legal.
- Workable provides users with a termination letter template and a furlough letter template that you can download in Microsoft Word format and edit as needed. The company provides a completed sample termination letter to reference as well.
You are always best served by having an attorney review employee termination letters before you deliver them to employees.
How to communicate an employee termination
Effective communication can play a key role in maintaining legal compliance during an employee termination. The best way to communicate an employee termination is both orally and in writing. This allows you to definitively explain the situation and document the occurrence. The best way to speak to an employee about their termination is in a private setting, away from other employees. In addition to the employee, have at least two other people in the room during the termination, such as an HR representative and the employee’s manager.
“From a legal perspective, having more than one person in the room when the decision is communicated to the employee provides the employer with a witness to the discussion, which can help mitigate a ‘he said, she said’ scenario if the employee later claims that he or she was terminated unlawfully,” Fontanesi said.
When terminating the employee, use clear, definitive wording. Do not use ambiguous or emotional language that would lead the employee to believe they are being furloughed or laid off with the potential for rehire (unless, of course, that is the case). Articulate the reason for termination as concisely as possible, and avoid unnecessary language that prolongs the conversation. The decision for termination is not a debate.
Employers should be sure to provide all required state and federal legal notices during the termination. For instance, Fontanesi said that California employers must provide the terminated employee with a copy of the “For Your Benefit: California’s Programs for the Unemployed” pamphlet, and employers with 20 or more employees must complete and provide the employee with the appropriate COBRA forms. Additionally, communicate other essential information, like final compensation and severance pay details.
“Depending on the situation, an employer may also want to consider offering a severance payment in exchange for the employee releasing any claims against the employer and covenanting not to sue,” Fontanesi said. “This is typically documented in a severance and release agreement.”