What is termination letter

A termination letter is an official document that an employer gives to an employee, formally informing the employee of their employment termination. 

A termination letter is also known as a letter of termination or a notice of termination, bringing the employment contract to a premature end.

The content in this article is informed by US labor laws, please consult your local labor laws for appropriate recommendations.

What is a termination letter?

Historically, a “pink slip” served as the letter of termination, delivered on the pink layer of a triplicate form. In some instances, a termination letter is still described with this terminology.

An official employment termination letter is a formal notice of termination and contains pertinent details for the record. 

Details to include in a termination letter

Each company’s termination letter will differ slightly, but most follow a similar template, including the following information:

• Employee name
• Employee designation
• Manager name (or human resources manager)
• Reason for termination
• Date of termination
• Notice period until last day of work
• Contact information
• Disbursement date of final paycheck
• Severance pay (if relevant)
• Details to return company property, such as a company cell phone or laptop
• Details on the end of employee benefits, such as health insurance

Depending on the working relationship, this termination letter may differ slightly. For example, the process of terminating an independent contractor differs from the dismissal of a permanent employee. 

Stipulating reason for termination

Specifying the reason for termination is arguably the most important detail to document. 

Common reasons for termination include;

• Poor employee performance
• Misconduct in the workplace
• Irresponsible behavior at work
• Violation of employment contract, such as breaking a non-disclosure agreement
• Downsizing the company
• Sudden loss in company business leading to mass layoffs 

In the instance of an employee’s actions leading to their termination, companies should take appropriate actions before delivering the employee termination letter. For example, warning of misconduct or arranging PIP (Performance Improvement Programs) in the instance of poor performance.

If the termination is not due to the employee's fault, then company policy should be consulted regarding severance package, unemployment benefits, etc.

All termination details should be included in the employment contract for local and international hires. 

Is a letter of termination required?

Under the Fair Labor Standards Act (FLSA),  companies in the United States are not legally required to provide a letter of termination when they layoff an employee. However, a formal document in the termination process provides a thorough and detailed account of events for record-keeping.

Without a letter, a terminated employee may claim that they were dismissed without knowing or cause. A letter confirms the reason for termination and serves as a defense against a wrongful termination lawsuit.

A thorough letter will also include a summary of all warnings or disciplinary actions leading up to termination. These actions should reflect the termination process stipulated in the employee handbook. 

Regardless of the reason for termination, it’s important to terminate an employee legally and gracefully to preserve the company’s reputation and prevent legal or financial implications. 

“Without cause” vs. “with cause” termination letters

Asking the difference between termination “without cause” and “with cause” is a FAQ regarding termination of employment. 

Dismissal without cause

Employers have the right to unilaterally dismiss a non-union employee at any given moment. An employer may even dismiss a top-performing employee without a valid reason. However, there is one condition. The employer must give reasonable advance notice of termination or payment in lieu. 

The amount in the severance package depends on the individual’s situation, such as their age, position, length of service, and the details in their employment contract. 

Dismissal with cause

As the name suggests, dismissal with cause occurs because the employer has engaged in serious wrongdoing. An employee must prove the cause to be legitimate for the termination to be legal.

Allegations and suspicions are not valid causes for dismissal. Instead, concrete evidence of misconduct must be presented. Dismissal with a cause doesn’t require advance notice or payment in lieu. 

Remember that dismissal with a cause can have a long-term impact on the employee’s career and should be justified clearly.

Remain compliant during termination

Termination is an uncomfortable experience for all parties involved, and the experience can worsen when mismanaged. In the modern working world, termination has become more complicated with the emergence of remote teams and independent contractors. 

At Deel, we offer a wealth of information on handling the termination process in a legal and dignified way. View our contractor termination letter template as a starting point!