Can a Contract be Terminated by Agreement? | Contract Termination

Can a contract be terminated by an agreement? In short, yes, if it’s written into the contract. There are four main ways to terminate a contract. If there is a fixed term, usually a contract will be one year, two years, or three years long. And then if there’s no language for automatic renewal, meaning the contract doesn’t automatically renew for usually successive one-year periods. It just ends, and neither party wants to continue the agreement. The employer terminates the contract, and that’s it. Another way parties can terminate a contract is with cause. Say, one of the parties breaches the contract. They don’t fix the breach. The other party would generally have the option to terminate the agreement.

The third way is without cause termination. Here, either party would have the opportunity to terminate the agreement at any time. For any reason. With a certain amount of notice to the other party. Usually, an employment contract is going to be somewhere between 30 to 90 days. In that scenario, as the employee, you’d give the employer written notice and say, I’m terminating the contract without cause. Then if it’s 60 days, you work out the 60 days, and the contract ends. And the last way for a contract to terminate is by mutual agreement. Suppose there is no mutual agreement listed in the contract. Theoretically, the party should still be able to say, alright, we can wash our hands of this and move on.

If It’s Not Listed, Give Without Cause Termination

Suppose they don’t list mutual agreement as one of the ways for contract termination. In that case, you could give without cause termination notice, work out your days and leave. The employer could say, I know you must provide notice, but we’re not going to enforce that. Then you can move on. What are some reasons for the contract by agreement? Several things like it could be a bad cultural fit. Although you get a good assessment of your ability to fit in during the interview process, reality is simply different. And then the employer can feel the same way and say, look, it’s just not a good match. Let’s wash your hands of the contract. We can both move forward. We’re not going to require you to work anymore. 

Another possible scenario is if the contract requires 60 days’ notice and the employer doesn’t agree to the termination. Still, they decide to reduce the notice required. Most professionals without contracts are expected to give two weeks’ notice in order to wrap up their work and leave. The employer may no longer require the 60 days notice. But they still require you to do at least 14 days and allow them time to find a replacement. Or figure out where to divert your work to someone else.

Yes, you can mutually agree to terminate a contract with the employer if they are willing to do so. Though it’s rare that people use this termination process. Assumably, nine 9 out of 10 people terminate a contract without cause. That’s how the employment relationship would end. But if it’s not working out for both sides who feel it’s better to move on, that doesn’t happen often. Meanwhile, if both parties were okay with it, then yes, you could do it that way.

Other Blogs of Interest

• Can I Quit my Job if I Signed a Contract?
• Can an Employer Require 90 Days Notice?
• Consequences of Breaking an Employment Contract

Can an Employee Terminate an Employment Contract?

Can employees terminate employment contracts? The short answer is yes. However, it will be dictated based on the terms in the contract. In any contract, there will be a section that deals with the terms or length of the contract and termination. Let’s first talk about the term of the contract.

Contract Termination Procedures

Contracts will have a year-long date, two years, or three years. They’ll also have language stating if no one terminates the contract, it will automatically renew for successive one-year terms. There, if a contract isn’t ended in another way after the initial period ends, it’ll just continue forever until terminated. I’ve observed that rarely is there a fixed term with no language about automatic termination. If it’s a two-year fixed term with no automatic renewal, it will end in two years, and that’s it. The parties can go their own way. 

As with terminating the contract, the first part is that if there’s no renewal, it ends. The contract is terminated. Second, by mutual agreement. If both parties have agreed that the relationship isn’t working, they can always, by agreement, decide to move on. Then that’s it. Next would be for cause termination. Here, if someone breached the contract, there’ll be language stating why the employer fired the employee. Say you need a license to perform the activity, and you lose it. Or if insurance is required and you’re uninsurable. Usually, there are vague behavioral clauses. If you’re disabled, you die, kind of standard things. 

There should also be a part called a cure. If one of the parties believes the other party has breached the contract, payment concerns are the most common. Either someone is not being paid the amount they were promised in the contract. Or maybe the timing of the payment. Or say there’s a bonus and disagreement ensues over how much the employer owes. That’s always a big reason there would be allegations of breach of contract.

Employment Contracts And Termination Notice Period

If you believe the employer was in breach of contract, you’d have to provide them with written notice. A cure period means the employer would have a period to fix whatever the breach of contract is. It’s usually somewhere between 15 to 30 days. The same can go for the employee. If the employer thinks the employee is in breach of contract, they give them written notice. Then the employee has 15 to 30 days to fix the breach. Say, no one has fixed the breach, or the other party still believes the other is in violation. Usually, that party has the option to terminate the contract immediately. 

The last and most common way is without cause termination. In employment contracts, there’ll be language that states either party can terminate the agreement at any time. For any reason, and with a certain amount of notice to the other party. Typically, it would be somewhere between 30 to 90 days. If the professional is unhappy and wants to quit, they give written notice saying, I’m utilizing the without cause termination notice. Then they must work out for 30, 60, and 90 days. At the end of that period, they can move on without any concerns regarding terminating the contract.

Legal Requirements Before a Worker’s Termination

Yes, an employee can terminate a contract, but they must follow the terms of the contract. Now, just because an employee terminates the contract doesn’t mean it necessarily ultimately ends at that point. They could be required to do certain things if they terminate the contract.  They often receive relocation assistance upon getting a signing bonus. The employee would have to pay back a prorated portion if they left within the initial term of the contract. Others could have non-compete associated with it.

Employment Contract Termination and Non-Compete Laws

So, just because an employee terminates the contract doesn’t mean that the non-compete doesn’t apply. It does, at least in most circumstances, if you’re in a state where non-compete contract termination clauses are enforceable.

In the non-compete clause, the geographic and some temporal restrictions will continue even if you terminate the contract. If some malpractice insurance is involved and tail insurance is needed, the contract says who must pay for that too. If the employee terminates the contract, they may also be responsible for that. Although the employee has options to terminate the contract, it doesn’t mean that there aren’t at least some strings attached. My topmost priority when going over a contract with a professional is, how do they get out of the contract? And what do they have to do if it ends within a certain period?

In that way, the employee can prepare to set aside some money if they must pay for tail insurance. Or if they must pay back the signing bonus. So, they’re important discussions and indeed the things employees could negotiate before signing any contract. Hopefully, that was a helpful overview of the termination of an employment contract.

Can You Write an Email to Terminate an Agreement? 

In short, you probably shouldn’t, and your employment contract probably prohibits it. In any contract, it’s going to state how you can terminate a contract. It could be for cause, without cause, mutual termination, or maybe the initial term ends. But in most cases, I mean parties can terminate most contracts via without-cause termination. Where either party can perform the contract termination at any time with a certain amount of notice to the other. 

For most employment contracts, around 30 to 90 days is an average amount. Suppose you are an employee, and for whatever reason, you don’t want to work for the employer anymore. In that case, you need to follow the terms of that without cause termination notice. And it always needs to be written. It’s going to state it must be written. And it will also say if it’s a 60-day without cause termination, you have to provide it 60 days prior. You work out those next 60 days, and the contract terminates after the 60 days are over. You’re free to move on to where you want to go, considering whether there’s a non-compete or a non-solicit. But we’re not going to get into that today. 

Look at the Notice Section

Now, the most crucial part regarding this topic is called notice or notices. It’s usually toward the back of the employment contract. It will state to whom and how you need to provide the contract termination notice if there is communication. Also that you have to provide in writing a certified letter, overnight, hand delivery of whatever termination notice you’ll provide. And that would then be considered adequate notice. 

Very few contracts allow email as an effective notice medium. Let’s say you wrote an email telling the other party. “Here’s my without cause termination notice, I have 60 days, X will be my last work day, appreciate the opportunity.” If the email is not an effective communication medium within that notice section, that won’t be considered. And then, the employer could make you work for another 60 days until you provide real effective notice. So, that’s the most critical part. Always look in the notices section and determine if an email is a proper way to terminate the contract. I can tell you if I review a hundred contracts, 98 of them will not include email or fax. You also certainly can’t just verbally tell your employer you’re leaving. It must be in writing. And most often, it has to be sent either by certified mail or hand-delivered. 

Whether you work for a small practice or a giant conglomerate with locations in every state. It’ll be impossible to hand-deliver the notice if you must provide it to the headquarters halfway across the country. So, to be safe for the most part, you need to write the letter. You’ll have to print it out and send it via certified mail to whoever they must send it to. Usually, it’s one or two. You must send it to the owner if it’s a smaller practice. If it’s a big conglomerate, you have to send it to your boss plus the legal department of the company. 

Provide Proper Notice to Your Company

You’ll be safe if you look through how much notice you have to provide effectively. I have a couple of scenarios, and people have called me after the fact. They’ll say, “I sent an email to my boss and I told them I was going to terminate the contract. But they didn’t say anything and I just assumed that my contract would end on a specific date. Now, the employer was mad that I was leaving. They were ticked off.” So, what they did was sit on it for 45 days. Then 15 days before the physician thought he would be leaving, they said, “You didn’t provide us with adequate notice. Email is not an effective form of communication for that. You owe us another 60 days until you give us actual notice, meaning a written letter sent via certified mail.”

And so, the physician had already lined up another job. He had a start date in mind. He had to go back to the new employer and apologize for delaying his start date by almost two months. And that was a tough pill to swallow for him. So, if you follow the terms of the notice section, you should be okay.

Can an Employee Terminate a Contract at Any Time?

Can an employee terminate an employment contract at any time? The short answer is probably. However, it’s going to depend upon the language in the contract. Ways that people can terminate a contract: one, if there’s a fixed term, meaning a one-year, two-year, or three-year contract. Here, there’s no language that states the contract automatically renews. At the end of that fixed term, if neither party is going to sign another contract, the contract terminates. Both parties can move on, that’s it. That’s one way professionals can terminate a contract. Two, through mutual agreements. Maybe it’s not working out. Both parties are like, you know what? Let’s move on. You can mutually agree to terminate the agreement. Three, for cause. In any employment contract, there will be a section called termination. In that section, it’s going to state how parties can terminate the contract.

Breach in Agreements

Without cause termination is going to be, if one party breaches the contract in some way, how can the other party terminate the contract for the breach? In most of the for-cause termination clauses, it will state, if one party believes the other party is in breach, they must give them written notice. And then that party usually has a period to fix the violation. We called that a cure period. Usually, it would be somewhere between 15 to 30 days. Maybe the employee wasn’t getting paid a bonus that the employer promised. The employee lets the employer know: you’re in breach of contract. You have 15 days to pay me my bonus, or I can terminate the contract immediately. If the employer does pay the bonus, they can no longer terminate for cause. And they could go to the last way of ending the contract, which is without cause.

Contract Termination Notice Period

In every work contract, this is very important. There should be a “without cause” termination. Either party can terminate the agreement anytime, for any reason, with a certain amount of notice to the other party. Usually, that notice period is between 30 and 90 days. Why is this important? Suppose an employee takes a job, and the employer lies to them. In that case, if they’re on production-based compensation from collections, commission, percentage, encounters, and healthcare RVUs, it doesn’t matter. Suppose someone comes in and they’re given no guaranteed base, daily rate, or guarantees at all. Or the volume is not nearly what they expected it to be or what the employer said it would be. And they don’t have a way to get out of a contract without cause. They can stick themselves in that job for whatever the length of the term is. That’s not something you want. 

You always want the ability to get out of the contract with a certain amount of notice in the scenario where the job isn’t what you expected. Maybe your boss is a terrible manager, or they’re placing you in a territory or location you don’t want to be in. I mean, hopefully, you can work those things out in advance of signing the employment contract. Sometimes you don’t. Sometimes the employer just straight-up lies to the employee and says, oh yes, all these things are going to be there, and they’re not. Without cause is the way that an employee can insulate themselves from being stuck in a terrible situation for extended periods without any sort of recourse.

Before Your Contract Gets Terminated

So, can an employee terminate a contract at any time? If they have without cause termination, keep in mind that they must work the entire notice period. Like I said before, if it’s 30 days, give notice, work 30 days, and leave. Suppose you leave before the end of the notice period. In that case, the employer could theoretically have damages and sue you for lost profits, recruiting, replacement, etc. Suppose you have a notice requirement in your contract. You want to make sure you give the proper amount, work it out, move on and find a new job.