What is a Termination of Employment Letter? Employer Guide

February 16, 2023

People are often the making of a business, however, it’s a natural part of the working world to lose members of the team along the way. While some employees will leave of their own volition, others will leave the business for other reasons. Whether that’s due to poor performance, misconduct, or redundancy, you’ll want to have a termination of employment letter to hand. As an employer, it's up to you to ensure the process is legally airtight while leaving no room for interpretation on behalf of the employee.

So, what does a termination of employment letter achieve? When should it be used? And what are the risks of not using one?  

We tackle the most commonly asked questions related to termination of employment letters and provide a guide for employers in need of some guidance when employees depart.  

What is a termination of employment letter?

A termination of employment letter is used to formalise the termination of the employment contract of an employee.  While it is not usually a strict legal requirement to have a termination letter, (although often employment contracts will state that notice of termination needs to be in writing) it is important for several reasons.

Arguably the most important reason from an employer’s perspective is that it provides certainty. Even if you are entitled to verbally dismiss an employee, it is always a good idea to follow it up in writing in the form of a termination letter. It will remove the risk that an employee could try to argue that they were not dismissed, or that their employment terminated on a different date (which can be difficult in terms of final pay if it is not clear).  

Another important reason why termination letters are useful for employers is that they set out the expectations and obligations for the employee after the relationship has ended. It can help make the transition smoother if the employee understands, for example, that they will be paid in lieu of notice, or that they have taken more holiday than they were entitled to (in which case their final pay package might be less than expected). Most employment contracts will contain obligations to return company property as well as ongoing obligations of confidentiality, so it can be helpful to remind the employee of these points in a formal letter. Termination of employment can be an emotionally difficult time (for both parties) and having certainty and a letter to reference can help everyone involved.  

What are the risks of dismissing a UK employee?

UK employees have a series of employment rights, which include certain protections related to the terms of dismissal. As an employer, it’s crucial that you abide by the law and the employment rights of your employees. If handled incorrectly, you can be hit with an unfair or wrongful dismissal claim.  

The main risks when dismissing UK employees are:

  • Unfair dismissal (where employees have more than two years’ continuous service)
  • Automatically unfair dismissal (if an employee is dismissed for an automatically unfair reason, e.g. because they acted as an employee representative, then they do not need two years’ service to bring a claim)
  • Wrongful dismissal (dismissal in breach of the terms of the employment contract, e.g. not giving the required notice period of paying PILON in the absence of an express contractual right to do so)
  • Discrimination (if you dismiss someone for a discriminatory reason you will be breaking the law, regardless of the employee’s length of service)

If an employee brings a successful claim against the company then, as an employer (and depending on the type of claim), you may find yourself obliged to pay the employee compensation for the loss of their employment, injury to feelings (if the dismissal was for a discriminatory reasons) and/or having to reinstate the employee in their role.  

When to use a termination of employment letter

So, when should you use a termination of employment letter? Fortunately, the clue is in the name with this one. You’ll want to use this letter when ending an employee’s contract, whether that’s due to redundancy, poor performance, misconduct, or any other legally sound reason.  

Each case will depend on its own facts, and we can advise on you how best to manage the process of dismissing an employee (it’s never as simple as just handing them a letter), but usually a manager will explain verbally to an employee that their employment is being terminated and why. This will then be followed up in writing in the form of a termination of employment letter.  

The risks of not using a termination of employment letter

As we touched on above, we always advise our clients to use a termination of employment letter when dismissing an employee (for any reason). In the event of a claim against you, any ambiguity will usually be interpreted in the employee’s favour, so it is best to be completely crystal clear about the termination of their employment. Ideally, you will have had legal advice throughout the process of dismissing the employee and understand everything that you need to do to minimise legal risk.  

The termination letter helps to minimise the risk of any disputes that could have been avoided by the employee simply understanding what happened, what to expect and why.  

Support with a termination of employment letter

As employment law experts, we understand the importance of tactful and pragmatic advice. We’ve helped countless companies through challenging conversations, and when needed, we’ve worked with employers to craft legally compliant termination of employment letters that they can rely on.  

Are you anticipating the close of a professional relationship? Having expert legal guidance throughout the process can be the difference between a crystal-clear termination, and one that grows legal legs. By working with a lawyer from the beginning of the process, you can quickly mitigate risk, simplify the process, and close the relationship on the best terms possible.

Contact us now for a free, no-obligation discovery call.

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