How to write a termination letter

Terminating employees for underperformance or misconduct is unfortunately, a necessary part of any business, but it’s the way it’s handled that makes all the difference.

If you end employment unlawfully, it could significantly impact your business by leading to unfair dismissal and discrimination claims that are often time-consuming and costly.

Below, we explain what the first steps towards dismissal are and what a termination letter must include.

The first steps towards dismissal

Before deciding to terminate an employee, it’ll often be appropriate for the employer to address the issues of concern with the employee in question via informal, and then formal methods.

Whether it’s unsatisfactory performance or conduct, employers should highlight the issues of concern with the employee, reiterate expected performance and behavioural standards, and provide clear guidance concerning future behaviour or performance expectations. If this isn’t successful in dealing with the issue, then formal steps are required, following proper process. These will result in written warnings where necessary. If, after this, the employee continues to demonstrate inappropriate behaviour or poor performance, termination may be then appropriate (again, after following the proper process).

For certain types of misconduct that are more serious, such as theft, fraud, or assault, it may not be appropriate to engage in a protracted process and summary termination is warranted – it is, however, always best to consult with an HR consultant, such as Citation HR before acting to avoid any future claims being made and to protect your business.

The principle is to engage in a fair and reasonable process where the evidence is considered, an unbiased and reasoned decision is made, and the employee’s feedback has also been considered before a decision is made.

A dismissal will always be unfair if a proper process is not followed, regardless of how good the reason was for the termination.

Ending the employment relationship

An employer may decide to end the employment relationship where the employee;

• has engaged in serious misconduct that warrants summary dismissal; or
• has received previous written warnings for issues raised regarding non-performance or misconduct and the employee has been provided with a reasonable opportunity to rectify the situation.

If this occurs, it’s important to ensure that termination is communicated to the employee clearly, promptly, and effectively. It is recommended this is communicated in writing.

It’s best practice for a termination letter to outline the period of notice to which the employee is entitled (depending on the reason for dismissal, the notice period may or may not apply). If the employee hasn’t been summarily dismissed, the termination letter should specify whether the employee will be paid in place of all or part of their notice period or is required to work out the period. The date on which the employment will be terminated should be clearly noted. For employees terminated by way of summary dismissal, it should be stated that the employment is terminated immediately and without notice.

Reason for the dismissal

The reasons for an employee’s termination should always be explained clearly to the employee, and they should be allowed to respond to the employer’s concerns before a decision is made.

One of the most critical elements to include in a termination letter is the reason for the employee’s dismissal. Any ambiguity surrounding the reason for termination may result in a personal grievance claim against the employer. Some reasons which may give rise to termination include:

• repeated or extended poor performance;
• misconduct, whether serious misconduct or otherwise;
• breach of contract;
• inability to perform the inherent requirements of the role; or
• redundancy (employers should have regard to any consultation obligations that may apply if termination is for this reason).

When termination relates to an employee’s extended poor conduct or performance, it’s highly recommended that employers include in the termination letter details of past warnings given to that employee and other relevant discussions that have occurred before termination. By referencing dates of relevant meetings and discussions, a timeline of events can be established that can be helpful in the event of a future claim.

Finalising an employee’s final pay

It’s also best practice for a termination letter to outline the details of the employee’s final pay. When the employment relationship ends, final remuneration may include the following entitlements:

• Any outstanding wages or other remuneration still owing.
• Any pay in lieu of notice of termination (if applicable).
• Any accrued but untaken annual leave, long service leave and alternative holiday entitlements.
• The balance of any time off in lieu of overtime (TOIL) that the employee has accrued but not yet taken.
• Any redundancy pay or associated entitlements if the employee has been made redundant and is eligible.
• Any bonuses or incentive payments the employee may be eligible to receive.

Employers must comply with any requirements under a contract to pay an employee’s final remuneration within a specified time frame. Generally speaking, final pay should be made immediately after the employee’s last day of employment or on the next pay run, and final payment should not be unreasonably withheld.

What else should be included in a termination letter?

When finalising the termination letter, it’s recommended that the employer reiterates the employee’s obligation to return any company property, such as keys, a laptop, a uniform, or even a company car.

Where the employer is concerned regarding any confidential information that the employee may know or have, or any risk of post-employment competition or solicitation, it’s also wise to remind the employee of those commitments so that there’s no doubt or uncertainty regarding their post-employment obligations.

For an employer to appropriately mitigate the risks of employee claims following a dismissal, they should ensure that the termination letter avoids any reference to factors that may give rise to discrimination claims. These factors include (but are not limited to) age, gender, pregnancy, or disability. Whilst an employee’s termination might not have been for any of these reasons specified, no reference must be made to these factors to protect the business from risk effectively.

An employer should always keep a copy of the letter of termination of employment for your records for a minimum of seven years.

Any employer who is unsure about a termination decision or would like confirmation of an employee’s minimum notice in the wording of a termination letter should seek advice to minimise their risk of a claim resulting from the dismissal.

If this article has raised any questions or concerns or you’d like to learn more about how we can help your business, please reach out to our workplace relations experts via our 24/7 HR Advice Line.