Early Termination of Employment Contract by an Employee | How To Terminate Contract Early

Early termination of an employment contract by an employee, and a discussion of how to terminate an agreement. Any employment agreement will have a term, meaning how long it lasts, and often there’s a fixed term. So, one, two, three years. At the end of that term, it will likely have language stating it will automatically renew for a one-year term. That is, unless either one of the parties terminates it. I’d say more recently, over the last five years, evergreen contracts have become more popular. And that means there’s no fixed term. It just simply states that the contract continues forever until either party terminates the contract. So, identifying the actual term of the agreement is important. And then, the next step is termination. In any employment agreement, there will be language that states how either party can terminate the agreement.

Ways That Parties Can Terminate The Employment Contract

One, if it is a fixed term with no renewal language. Let’s say it’s a two-year term, two years ends, doesn’t automatically renew. Neither party wants to renew, it just ends, that’s it. So that’s one way. Mutual agreement, if either party says, you know what, this isn’t working out. We don’t need to provide notice. We can agree it’s not working; And we move on. Those are rare, to be honest. Almost every contract is terminated in one of two ways: for-cause, meaning somebody breached the contract and didn’t fix it. Or without-cause, which is easily the most common way of employment termination.

For-cause, we’ll usually have a list of things that the employer, the company you’re working for, can terminate you for. For healthcare professionals, they lose their license and DEA registration. They’re uninsurable, there’ll be maybe something about criminal issues, professional responsibility, behavioral concerns obviously, like death, disability. Those types of things. So, we’ll list what the employer can terminate the contract for, immediately. There may be a section stating if there’s a breach by the other party, they must provide written notice to the other. Then, at that point, the other party has what’s called a cure period. A cure period means a limited time to fix whatever the breach is. Let’s say an employer promised to pay a bonus to an employee at the end of every month. Then it would be a period after the month ends, and they just stop paying the bonus the employer earned.

Other Blogs of Interest

• What Should be in a Termination Agreement Letter?
• Is There a Penalty for Early Termination of an Employment Contract?

The employee can state, you’re not paying me my bonus. You’re in breach of contract. You have 15 days to pay me or I will terminate the contract immediately. One way to end a contract early is if the employer breaches the contract and ultimately doesn’t fix it. That’s how someone could end the contract early. 

Without-Cause Termination To Terminate Contract Early

At least in this scenario, the most popular way would be called without-cause termination or no good reason. Without-cause termination means either party can terminate the agreement at any time with a certain amount of notice to the other. Normally, it’s going to be somewhere between 30 to 90 days.

Let’s say you’re an employee, find a new job, and want to leave. If the without-cause termination language simply states, you must give 30 days’ written notice. Then give written notice to the employer stating, I’m giving you notice. I plan to terminate the agreement. You work out your 30 days, and you can move on. The most common way of terminating an employment agreement early is without-cause termination. There are some huge red flags if there is no language like that for several reasons. No one wants to stay in a job they hate. No one can force you to work somewhere, right? So, it’s clearly not working out if you’re into a job after five months. No one wants to stay around. Let’s say the initial term is two years.

Stick it out for those two years. You want the ability to get out of the contract if it’s not working out. And the employer should feel the same. If they bring in an employee and it’s just not working out for whatever reason. They’d want the ability to get rid of that employee as well. 

Termination Notice Period

Now, why is there a notice? Well, it depends upon the industry, but usually, it’s to smooth out the employee’s transition. If you’re a healthcare provider and the employer says you’re fired, go home immediately. Well, there are a ton of patient care issues as far as continuity of care. Who’s going to write the prescriptions? Are you going to refer out the patients? Who’s going to see all the patients on the schedule? That’s why there’s at least some window of time to get the transition to allow for safe patient care.

In other industries, they’ll bring someone else on and hope there’s training between the person leaving and the one replacing. Or it’s like a sales job, with many contacts you want to give notice to. Like those people, the salesperson is leaving, and someone else will replace them. It just allows for a smooth transition. And having absolutely no notice for an employee to leave or an employer to fire you. It can be a kind of drawing to a business. That’s why there’s always at least some notice period for without-cause termination. 

Lengthy Notice Period is a Red Flag for the Employee

Another red flag would be a super long notice period for without-cause termination, like 180 days. It can get awkward for a professional if they’ve given notice. And they’ve informed the employer. I’m going to leave. I think it can hurt feelings. Relationships can change. And so, in some places, it’s no big deal. But in others, they act like it’s the biggest disaster of all time, and they’ll treat the professionals poorly. I think a long notice period is a bad idea for several reasons. 

So, that’s how you can terminate a contract early. You absolutely should have in the employment agreement language that allows that. Being stuck in a contract without any language, which allows you to terminate the contract early, is a terrible idea. And I would say, do not sign a contract for employment that has that.

What Does Termination Not For Cause Mean?

What is termination not for-cause? In an employment contract, it can get terminated in several ways. The most common way for a contract to be terminated is not for-cause. It’s also known as without-cause for no good reason. I think without-cause is probably the most used name. I’m going to refer to no good causes without-cause to avoid confusion. As far as agreement termination, parties can terminate in many ways. Let’s say it’s a one-year contract if it’s just a fixed term. There’s no language that it automatically renews. The one year finished, and neither party decides to renew it, the contract terminates, and that’s it. A contract also terminates with a mutual agreement. Either party, for whatever reason, decides, you know what, this isn’t working out, let’s go our separate ways. 

A contract can also be terminated for-cause. Suppose there is a breach of contract amongst the parties. In that case, there will be language in the contract stating if this happens, one of the other parties can terminate the employment immediately at their options. For instance, let’s say you’re a healthcare professional and have a license to do what you’re doing. Let’s say it’s a physician. This physician loses their medical license. They can’t perform the terms of the contract. The employer can automatically terminate the agreement. 

Early Termination Through Without-Cause

Another way of employment termination is without-cause for no good reason. In this case, what does that mean? Almost every employment contract states that the contract can be terminated at any point. And for any reason, with a certain amount of notice to the other party. This is the important part. Normally, without-cause will usually be between 30 to 90 days in a contract. Let’s say the professional wants to leave. Maybe there are better job opportunities. Then they provide written notice that states, per the without-cause termination section, I’m giving you the 90 days’ notice. And then the professional works out those 90 days. At the end of the 90 days, they can move on to their new job opportunity. 

Things to think about as far as without-cause termination: if the contract states you can only do it after a certain period. That’s a red flag! Some contracts will state that you can only give without-cause termination after the first year or the initial term. You don’t want to sign a contract that has that. Why?

What if the Contract Does Not Have Without Cause Termination?

Well, if you enter a contract, the employer often talks up the position. And it doesn’t turn out to be what you were expecting. If you have no way of terminating the contract without-cause, you are stuck. So, you always want the ability to get out of the contract if it simply isn’t working. Maybe the volume isn’t there. You’re not making as much money as you like. The hours are different than they told you, or your call responsibilities are more than expected. There could be hundreds of reasons someone isn’t happy in a job. But it is a problem if you cannot get out of that job anytime. So, it would help if you had without-cause termination, 30 to 90 days is reasonable.

Anything over that is not reasonable. Sometimes, I’ll see a contract with 180 days or even a year without-cause notice. You don’t want that for a couple of reasons. First, once you provide notice that you’re leaving. Relationships can change, and they can sometimes be awkward. Sometimes, it cannot be very friendly. To shorten that period where it’s awkward is just better for the professional. So, you want a shorter without-cause termination. And then there also needs to be language in the contract that states if the professional gives notice. Still, the employer decides, you know what, you’re leaving. Just leave tomorrow. The professional should get paid for whatever the notice period was. If it was a 60-day without-cause notice period, the employer says, we don’t want you to be here long term. We don’t want you here at all. The professional should get paid for those 60 days. 

Every Employer or Company Should Allow Without-Cause

I mean, think of it the opposite way. The employer requires a 60-day notice so they can make plans to transition, replace you, or whatever. They want the professional in that, so they’re not losing out on profit for 60 days. Well, the same thing should go for the professional. If they’re required to give notice, they should get paid even if the employer doesn’t want them to continue working. So, yes, you can terminate the contract without-cause. 

It absolutely should be in every employment agreement. It is a huge red flag if there isn’t. I find that if there’s a contract without any ability to terminate without-cause, there’s usually a reason behind it. And it’s usually because the employer is either badly managed or bad at business or maltreats their employees. It could also be that they have had a continuous string of people leaving early. And so, they want to prevent that, but you do not want to get into a situation like that.

Can an Employee Terminate an Employment Contract?

The short answer is, obviously, yes. However, it will be determined based on the terms of the contract. In any employment contract, there will be a section that deals with the times, the employment contract’s length. And then termination, so how that contract ends. Let’s first talk about the terms of the agreement.

Most employment contracts will have a date, meaning it’s a year-long, two-year, or three-year contract. Then if the agreement doesn’t terminate, it will state a language. It will automatically renew for successive one-year terms. In that case, if it isn’t closed in another way after the initial period, it’ll just continue until terminated.

I would say there is a rarely fixed term with no language about automatic termination. If it’s just a two-year fixed term with no automatic renewal, it would just end at the end of two years. That would be it. The parties can go their ways. 

What Are the Reasons for Contract Termination?

Now, regarding employment termination, the first part is that if there is no renewal. It ends, and the employment contract ends. Second, by mutual agreement. Suppose the employer and the employee agree that the relationship isn’t working. In that case, they can always, by contract, decide to move on, and then that’s it, you can move on. Next would be with-cause termination. In this case, if someone breaches the employment contract, there’ll be language stating why the employer can fire the employee. If you need a license to perform the activity and lose your license. Or if insurance is required and you’re uninsurable. There are, I guess, vague behavioral clauses. 

If you’re disabled, you die, I mean, ordinary things, but there should also be a part called a cure. In that case, if one of the parties believes the other is in breach of an employment contract, the most common reason is just payment concerns. Either someone is unpaid, they were promised an amount in the associate employment agreement, or maybe the timing. Also, the bonus payment is involved, and there is disagreement over the professional owed amount. That’s always a big, I guess, reason why there would be an allegation of breach of contract. 

What Happens if Breach of Contract Is Committed?

If you believe the employer breached an employment contract, you’d have to provide them with written notice. The cure period means the employer would have a period to fix whatever the breach of associate contract is. Typically, that’s somewhere between 15 to 30 days. And the same can go for an 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. If the breach is unfixed, the other party still believes the other party is in breach. Usually, that party has the option to terminate the agreement immediately. The last and most common way in most employment contracts is without-cause termination. There’ll be language that states that either party can terminate the employment agreement at any time. For any reason, with a certain amount of notice to the other party.

Typically, it would be somewhere between 30 to 90 days. Suppose the professional is unhappy and wants to move on. In that case, they give written notice saying I’m utilizing the without-cause termination notice in the employment contract. Then they must work out for 30, 60, or 90 days. Then at the end of that period, they can move on without any concerns regarding terminating the employment contract. Yes, an employee can terminate an employment contract, but they must follow the terms of the agreement. 

Employment Contract Termination and Non-Compete Law

Just because an employee terminates, the contract doesn’t mean it necessarily ultimately ends at that point. They could be required of the employee if they terminate the contract. Many times, if given a signing bonus or relocation assistance. The employee would have to pay back a prorated portion if they left within the initial term of the employment agreement. Others could have non-compete associated with it.

So, just because an employee terminates the contract doesn’t mean that the non-compete doesn’t apply. It does, or at least it does in most circumstances if you’re in a state where non-competes are enforceable. How long will that last if there is a geographic restriction and then some temporary condition? That will continue even if the employee terminates the contract. If malpractice insurance is involved and tail insurance is needed, it’ll say who must pay for that in the contract. Employees may also be responsible for that if they terminate the agreement. Although the employee can terminate the employment agreement, it doesn’t mean that there aren’t at least some strings attached. 

One of the highest priority things I look at in the contract when I’m going over it with a professional. How do you get out of the agreement? And then what do you have to do if it ends within a certain period? In that way, the employee can know that I need to set aside this amount of money. In case I must pay for tail insurance or if I must pay back the signing bonus. So, they’re essential discussions and things employees could negotiate before signing any employment agreement. Hopefully, that was a helpful overview of the termination of an employment contract.