Why You Need an Employee Termination Letter for Your Business

While not required under federal law when letting go of an employee, providing a notice of termination letter can put closure on an employment situation. The termination letter should be written carefully and provide certain details depending on the situation.

What is a termination letter?

A termination letter, also known as a letter of termination, dismissal letter, termination notice, or pink slip, is a formal document on company letterhead issued by an employer to notify an employee that their employment is ending. It is a vital tool in the termination process because it is an official declaration, as opposed to a verbal termination. Many companies have sample termination letters to fit both for-cause and not-for-cause situations.

For the business, the termination letter serves as an official business record or official document. It contains details of the termination, including the date and reason for the termination, as well as information on the final paycheck and continuation of health care benefits, other benefits, severance (where applicable), and the return of any company property.

Some states, including Arizona, California, Illinois, and New Jersey, require termination letters. In some cases, a specific template must be followed. In others, the state may provide a form employers must complete and present to the terminated employee.

Why are letters of termination necessary?

While not necessary in most states, termination letters are a best practice specifically because they offer clarity as to why employment is ended, as well as what the terminated employee can do to extend any health care benefits and file for unemployment.

Termination letters serve as any or all of the following.

Formal notice

By the time an employee is issued a termination letter, the employee will have met with a supervisor or company representative face-to-face, over the phone, or by video call about the termination. The termination letter will simply be the formal notification that summarizes the meeting(s) and caps the employment.

Legal safeguard

A termination letter serves as a key legal document that will protect the company in case of a dispute or legal challenge from the employee. It does so by clearly outlining the reasons for termination. By doing this and by outlining the termination process, an employer minimizes the risk of wrongful termination lawsuits.

Final arrangements

Within the termination letter, the employer will detail the notice period and the final arrangements, which will include things like what company property needs to be returned, how, and by when. It will also include details of when an employee can expect a final paycheck, when benefits will end, how to extend benefits, and where to go to file for unemployment.

Future reference

For the employer, a termination letter will serve as a future reference as to how an employee’s employment ended and whether the employee will be eligible for re-employment.

Why are termination letters important?

A termination letter can serve several key functions.

• Provide structure: Even when a termination has been discussed verbally, a termination letter can add structure and prevent any misunderstandings. It does so by spelling out the obligations of both the employer and employee; this prevents ambiguity.
• Written record: Because the termination letter is a legal document, it must provide certain specifics, such as the reason behind the termination. The letter provides the employer with evidence that a fair and legal process has been followed. In cases where legal action is taken, the termination letter may be used as evidence.
• Corporate culture effects: Any termination affects corporate culture. While a termination letter cannot mitigate the trauma an employee may feel, it will serve as a clarifying document when written in an amicable format. Former employees, especially disgruntled ones, talk. A well-executed document may not stop the talk, but it could serve to minimize the damage.

Terminating with or without cause

Before an employer sets out to write a termination letter, the organization must decide whether the reason for termination is for cause or not for cause. Of the many potential reasons to dismiss an employee with cause, some of the most common are misconduct, insubordination, chronic tardiness, and poor performance.

There are legal ramifications to letting someone go without cause. Those let go without cause may be entitled to severance. On the other hand, letting someone go with cause may require the employer to demonstrate sufficient cause.

In the case of a planned plant closing or mass layoff, the Worker Retraining and Notification Act (WARN) requires at least a 60-day notice to those who will be affected. While the 60-day period is the minimum to provide written notice, employers are encouraged to give more notice when possible. Not all plant closings are subject to WARN, and certain employment thresholds must be reached before the WARN applies. WARN also sets out specific exemptions and allows for a reduction in the notification period in particular circumstances. Damages and civil penalties can be assessed against employers who violate WARN.

What should an employer include in a termination letter?

Terminations are going to happen, so it’s best to be prepared. Writing a sample employee termination letter and having it on file can help make the termination process easier. Once you have your sample employee termination letter written, it’s best to have your legal counsel review it to ensure you have covered all your bases.

Several categories of information should be included.

• Top-level information: Data such as the company name, employee name, ID or Social Security number, job title, employment termination date, and overseeing manager should be included.
• Termination reason: The reason for the termination is the most critical part of the employee termination letter, especially when the employee is being fired for cause. This part should be detailed. It should demonstrate that a process or performance improvement plan has been followed. Documented verbal and written warnings that are in the company records should also be outlined.
• Employee Benefits: After explaining the details of the termination, tell the employee when the final paycheck will be issued and how much it will be. If there is unused vacation time, accrued vacation days, or severance pay that will be paid out, detail that, also. Include information on health insurance, if applicable, when it will end, and how to extend it. Should a meeting with a benefits person be necessary, explain when and where that will be.
• Obligations: Returning company property should be covered in the letter. Explain what property, like a company cell phone or laptop, needs to be returned, where, and when. Deleting company information from personal devices should also be covered.
• Important clauses: Remind the terminated employee about any non-compete agreement, non-disclosure agreement, or other clauses that will affect the person moving forward.
• Appeals process: If your company has relevant company policies that allow for an appeals process, ensure the process is spelled out in the formal termination letter.

How an employment attorney can help

While an employer can create a standard termination letter template, it’s best practice to have an employment attorney review any termination letter before it goes to the employee.

The employment attorney can:

• Ensure legal compliance: An employment attorney can be especially helpful where state and local laws require a termination letter. The attorney will know exactly what needs to go in the employee termination letter or contract termination letter. In some cases, the employment attorney may have a sample termination letter an employer can use to simply plug in details and be compliant, which often costs less than having an attorney draft a termination letter from scratch.
• Draft and review documents: In especially complicated terminations, an employment attorney can either draft a document or review one an employer has put together from a sample termination letter.
• Manage risk assessment: Any time an employer terminates an employment relationship, some risk exists. This is why employers should train supervisors and managers to maintain records of meetings with employees. These records serve as the basis for continuing, promoting, or terminating employment. When it comes time to terminate employment, the employment attorney can review an employee’s file and assess the risk involved in termination.
• Handle disputes: Should a terminated employee not agree with the termination in any way, an employment attorney can step in and handle any disputes that may arise.

Do’s and don’ts for your company’s termination letters

Do’s

• Create a termination letter template: A termination letter template will give you the basis for your termination letter and can be tailored to fit each situation. You can have termination letter templates for terminations for cause and not for cause. Remember to have your employment attorney review the final termination letter before you present it.
• Provide accurate information: Ensure the termination effective date, all meeting and warning dates, names, and other details are correct to prevent any potential legal issues. Clearly state when the employment will officially end.
• Explain the reason for termination: If applicable, detail the specific reasons for termination, ensuring these reasons are factual, well-documented, and legally defensible.
• Outline final pay and benefits: Include information about the employee's final paycheck, any severance package (if applicable), and the status of benefits such as health insurance and remaining paid time off (PTO).
• List any company property to be returned: Specify any company belongings the employee must return, such as keys, devices, or documents.
• Discuss confidentiality: Remind the terminated employee of any ongoing obligations under the confidentiality agreement or non-disclosures they have signed.
• Provide contact information for follow-up: Offer a contact person for any questions the employee might have about the termination process or their benefits.
• Use proper tone: Ensure the tone is professional and respectful. Maintain a courteous and neutral tone throughout the letter to avoid unnecessary conflict or discomfort.

Don’ts

• Use ambiguous language: Be clear and direct in your language to avoid misunderstandings. 
• Include unnecessary personal comments or criticisms: Focus on facts and avoid any subjective judgments that could be seen as personal attacks.
• Neglect to document the process: Ensure the termination process, including the performance improvement plan, is well-documented, including any disciplinary actions or performance reviews leading up to the termination.
• Discuss the termination publicly: Respect the privacy of the employee by keeping details of the termination confidential within the organization.
• Fail to mention the appeals process or next steps: If your company has an appeals process or specific next steps for terminated employees, include this information in the letter.
• Forget to follow legal compliance: Always review termination letters for compliance with employment laws, especially with the help of your employment lawyer.
• Mention future endeavors: Keep the termination letter on point. No need to mention the terminated employee’s future endeavors.

FAQs

How should a termination letter be delivered to the employee?

In-person is best. But when you cannot do this, then a certified letter where a signature is required will suffice.

What are the risks of not providing a termination letter?

Not providing an employee termination letter can lead to ambiguity about why a termination has occurred. A terminated employee may legally challenge a termination when no documentation is provided as to why a termination was called for.

Can a termination letter be challenged legally?

Yes. Anything can be legally challenged. If an employer has provided all the information leading up to the termination, shown that a process has been followed, and explained all of the other information listed above, there is less risk that a challenge will stand.

Can a termination letter end an employment contract?

Yes. Though an employment contract or employment agreement typically has end dates in it, if an employer or contractor wants to end an employment contract or agreement, a termination letter of some kind is usually called for in the employment contract or agreement.

Is an employment contract the same as an employment letter?

No. An employment letter is more of a welcome letter to an employee that details the employment effective date, pay, benefits, and other onboarding information.

Is it best to have human resources present the termination letter?

It is typically best to have the manager present the termination letter but with human resources present as both a witness and guide so no mistakes are made.

What contact details should be included in the employee termination letter?

Include contact details of the company representative and the local unemployment office to handle further questions.

My state is an at-will state. Do I need to provide a termination letter?

Always check with your employment attorney or state labor office to determine if you need a termination letter in your state.

Should we use company letterhead?

Yes. Always use company letterhead to issue a termination letter.

Should we issue a termination letter during a probation period?

Check with your state labor office or employment attorney to be certain if you need a termination letter when letting someone go during the probation period.