Terminating someone’s employment can be fraught with legal risks for employers, not least where an employee has accrued the right to claim unfair dismissal. As such, it is important to follow a fair dismissal process, including notifying the employee in writing of the reasons for their dismissal and the effective date upon which their employment will come to an end.
The following practical guide for employers on how to write a termination of employment letter looks at the purpose of this letter and when this is needed. We also look at what a termination letter should include and the risks to avoid when drafting this type of letter.
What is a termination of employment letter?
A termination of employment letter is a letter notifying an employee in writing that their contract of employment is being brought to an end, together with the reason(s) for this.
If a decision to dismiss is made by an employer, regardless of their reasons, an employee should be formally notified of the dismissal decision. They also need to be informed of the effective date of termination, as well as their employee rights on termination. This should include a right to appeal the dismissal decision, as well as any notice rights.
Why is a termination of employment letter needed?
There are both practical and legal reasons for providing a termination of employment letter.
From a practical point of view, this letter will let the employee know exactly when their employment will be coming to an end, having regard to any right to notice and whether they will be required to work out their notice period. The letter can also be used to notify the employee of their rights and responsibilities on termination. This should include their right to appeal the dismissal decision and the procedure for lodging an appeal, as well as reminding the employee of any ongoing contractual obligations, such as any restraint of trade or confidentiality clause, and to provide instructions for return of company property.
From a legal point of view, as part of a fair dismissal process, employees have the right to be told of the reason for their dismissal. Equally, employees who have worked for their employer for two or more years have the statutory right to ask for a written statement giving the reason(s) why they have been dismissed. There are five potentially fair reasons for dismissal as set out under the Employment Rights Act (ERA) 1996, including conduct, capability, redundancy, statutory illegality and for some other substantial reason (SOSR).
When it comes to statutory illegality, this is where employment is unable to continue for legal reasons, such as where a HGV driver loses their licence or a professional no longer meets any registration requirements. In contrast, SOSR, is a statutory catch-all provision that can allow an employer to fairly dismiss an employee where no other potentially fair reason applies. This could be where, for example, a business restructure does not give rise to an actual redundancy or where an employee is refusing to accept new contractual terms.
When do you need to provide a termination of employment letter?
A decision to dismiss could be reached for a number of different reasons, from misconduct or poor performance through to redundancy and other scenarios. However, even if an employer has a potentially fair reason for terminating employment, and the employer’s decision to dismiss is reasonable in all the circumstances, they must still follow a fair procedure, including providing the employee with a termination of employment letter.
Once a decision to dismiss has been reached, the employer should not delay in setting their decision out in writing. In the context of disciplinary matters, employers should have regard to the guidance set out in the Acas code of practice on disciplinary and grievance procedures. This provides that employees should “be informed as soon as possible of the reasons for their dismissal”, and although different procedures apply to different dismissal scenarios, the same principals of fairness apply to any dismissal, regardless of the reasons.
In some cases, where an employee is dismissed for gross misconduct, they can be dismissed without notice or pay in lieu. In legal terms, this is referred to as summary dismissal, where employers can summarily dismiss an employee if the misconduct is so serious that it justifies dismissal for a first offence. Still, even in cases where there is clear evidence of gross misconduct, the employer must still put their decision in writing to let the employee know of their right to appeal and why they have not been given any notice or pay in lieu.
In cases of gross misconduct, the employer must also still fully investigate the alleged facts and provide the employee with the opportunity to defend themselves. It is only once a disciplinary procedure has been followed that a termination letter should follow.
What to include in a termination of employment letter
At the very least, a termination of employment letter should provide the ground(s) for dismissal, along with the date that the contract will end and details of any notice period. The employee should also be told of their right to appeal. Importantly, the Acas code of practice within a disciplinary context not only provides that the employee should be informed as soon as possible of the reasons for the dismissal, but also the date on which the employment contract will end, the appropriate period of notice and their right of appeal.
There is no set format for these types of letter, although the following matters, where applicable, should always be included:
- The reason(s) for the dismissal: the employer must clearly set out the legal basis for the decision to dismiss, with brief reference to the relevant facts. The employer must be able to document one of the five potentially fair reasons for dismissal under the ERA.
- The basis of the decision-making process: the employer should briefly outline the factors that were taken into account in reaching a dismissal decision. This could include, for example, any history of poor performance or previous incidents of misconduct, plus any warnings given. The employer may also want to explain why any mitigating factors or any alternative to dismissal was disregarded in reaching their decision, for example, where the employee has already received a series of written warnings.
- The dismissal procedure: the employer should explain the procedure that was followed in reaching their decision to dismiss, in this way helping to demonstrate the fairness of the decision-making process. This could include, for example, reference to any capability hearing in cases of poor performance, a disciplinary investigation and hearing in cases of misconduct, or to any consultation and selection process in the context of redundancy.
- The employee’s entitlement to notice or pay in lieu: the employer should set out the employee’s statutory or contractual entitlement to notice, making it clear whether the employer is required to work out their notice period or if they will instead be paid in lieu. Pay in lieu of notice will only be appropriate where provision has been made for this in the employee’s contract of employment. If the employee is being summarily dismissed for gross misconduct, termination of employment will take place with immediate effect, although the letter should explain why the employee has been dismissed without notice.
- The effective date of termination: the employer should clearly specify the date upon which employment will come to an end. This is important for a number of reasons, including setting out the employee’s rights and responsibilities, not to mention the date on which any final salary and outstanding annual leave will be calculated.
- The employee’s right to appeal: the employer should notify the employee of their right to appeal any decision to dismiss. They should also be told about or signposted to the employer’s appeals procedure and the timeframe for submitting an appeal.
The employer may also need to address certain practical matters, such as return of company property, as well as to remind employees of any post-termination obligations. These could include where the employment contract prohibits an employee from working for a competitor for a prescribed period of time and/or where they have agreed to keep confidential certain information.
What should a termination of employment letter look like?
When it comes to what a termination of employment letter should look like in practice, much will depend on the reason for the dismissal and the circumstances surrounding this. Below we set out a sample template that could be tailored to the circumstances involved.
[Date of letter]
Dear [employee’s name],
Further to your capability hearing on the [insert date of hearing] with [insert name(s) of those who held the hearing], we are writing to inform you of the decision reached to terminate your role as a software sales representative on the grounds of poor performance.
In particular, from the [insert date] to [insert date] you have failed to meet your monthly sales targets. You have also been warned, both verbally and on two occasions in writing, of the potential consequences of failing to improve your performance within the timeframe(s) provided. Since your first written warning on the [insert date], and your second and final written warning on the [insert date], you have consistently failed to meet your monthly targets, notwithstanding additional training and support given to you during this period.
Having received two written warnings, and having been provided with additional training and support — where these warnings, training and support have not had the desired effect — a decision has been made to terminate your employment. This dismissal decision is following the most recent capability hearing in which you were given an opportunity to respond to the allegations of poor performance. Based on your admission during that hearing that you don’t think “you have what it takes to sell software”, and in the absence of any factors mitigating this, we feel we now have no alternative but to dismiss.
Under your contract of employment, you are entitled to one month’s notice to be paid in lieu. The effective date of termination is therefore [insert date]. You will not be required to work out this notice period, and you are asked to return your company laptop and mobile telephone within the next 7 days. You are also asked to honour the post-termination confidentiality obligations as set out under your employment contract.
In accordance with our written capability policy, you have the right to appeal this decision. If you would like to lodge an appeal, you must do so by setting out your reasons in writing and sending your appeal to [insert name] at [insert address details] by [insert date].
[insert name & position].
Considerations for employers
When writing a termination of employment letter, the employer must always have regard to the possibility that any decision to dismiss could expose them to a claim for unfair dismissal for any employee with more than 2 years’ service. Terminating employment is not unfair, of itself, although the employer must be able to establish a fair reason for the dismissal and show that their decision to dismiss is reasonable in all the circumstances. Even where an employer has a fair reason to dismiss, and they acted reasonably in treating that reason as sufficient for dismissal, the employer must also show that they followed a fair procedure.
Ensuring that the termination letter reflects a fair reason for dismissal and shows that a fair process has been followed is essential, where this letter may be closely scrutinised by an employment tribunal if a claim is lodged against the employer. It is also worth bearing in mind that in the absence of a termination of employment letter, or where important matters have not been adequately addressed in writing, including the employee’s right to appeal, this may be relied upon as evidence of unfair process.
In any scenario in which an employer is unsure what to include in a termination of employment letter, expert advice from an employment specialist should be sought.
For expert guidance on employment contract termination, contact our employment law specialists.
Termination of employment FAQ’s
How do I write a letter of termination of employment?
When writing a letter to terminate employment, you must identify a fair reason for the dismissal, setting out the effective date of termination and whether the employee is required to work out their notice, together with their right to appeal.
How do you write a notice of termination of employment?
There is no set format for writing a notice of termination letter, although this must set out the reason(s) for the employee’s dismissal, the date on which their employment ends, including any notice rights, and their right to appeal.
How do you politely terminate an employee?
You can politely terminate employment by letting an employee know in writing of your decision, although to avoid a claim for unfair dismissal a fair process must be followed first, such as conducting a disciplinary investigation and hearing.
Does a termination letter need to have a reason?
A termination letter should set out the reason(s) for the employer’s decision to dismiss, where there are five potentially fair reasons for dismissal. These include conduct, capability, redundancy, statutory illegality and some other substantial reason.
Last updated: 28 December 2023