How do you Terminate an Employment Contract? | Contract Termination

How do you terminate an employment contract? There are several ways of doing it. If there is a fixed term, let’s say it’s an initial two-year term, and then there’s no language where it automatically renews. If no one decides to renew the contract, it ends in two years. It will terminate the agreement. Both parties can move on. It doesn’t happen very often in that scenario. There’s almost always going to be language that has automatic renewal. Suppose they have an initial two-year term to the contract. In that case, it’ll just state that if neither party terminates the agreement, it’ll automatically renew for successive one-year periods.

Fixed term, Mutual Agreement and For-Cause Termination

In that scenario, when there are automatic renewals, there are three other ways of terminating a contract. One is mutual termination. Both parties say, for whatever reason, this isn’t working out, we’ll terminate the agreement, and we can move on. The second way would be for-cause. In the contract, there’s to be a list of reasons a party can terminate the agreement. And then there’s also going to be language that states if that party thinks the other party is in breach of contract, they’re not fulfilling a term of the agreement. It’ll usually note that party then must send written notice to the other party saying you’re in breach of contract. And then, usually, there’d be a cure period. And that means the party has a certain amount of time to fix whatever the breach is, usually between 15 to 30 days.

Example of Scenarios for a For Cause Termination

And so, if that party fixes the breach, the other party cannot terminate the contract for-cause. Some reasons you can terminate a contract for-cause are compensation. Maybe the employer isn’t paying as much as they stated they would. Or they’re not paying on time. There’s a miscalculation of a bonus. In that scenario, the employee would say, hey, you told me you would pay me this much. You’re not paying me this much. You are in breach of contract. You have a short period to make it right regarding payment. And if you don’t, I will terminate the contract for-cause. 

And in that scenario, usually, that would mean the party could terminate it immediately after the cure period ends, and the other party didn’t fix the breach. In healthcare professions, if a physician or the healthcare provider loses their license, they’re not insurable. They can’t be given malpractice insurance, be included on some exclusionary lists, and get a felony. In those scenarios, there’s no chance that they can continue working as a physician. And then, the employer would have the opportunity to terminate them immediately for-cause. Those are some scenarios for-cause termination. 

Without-Cause Termination

And then, the last way to end an agreement and probably the way that’s utilized 95% of the time would be called without-cause termination. In that scenario, it simply states that either party can terminate the agreement for any reason, with a certain amount of notice to the other party. Usually, somewhere between 30 to 90 days, depending upon the profession. Healthcare professions tend to be a little bit more. After all, there is continuity of care issues with patients. In contrast, maybe some executive sales, that type of thing, it’s much less because there’s not as big of an ethical or, I guess, medical problems with transitioning patients.

They don’t have to worry about that. Let’s say someone has a 30-day without-cause termination. That party just provided written notice to the other party. Hey, I’m going to terminate the agreement. According to the contract, I’ll work out my 30 days, and in the end, I’m moving on. That’s how to terminate most contracts without-cause. 

Things to Consider for a Without Cause Termination

Now, some things to think about if it is terminated without-cause are. There should be language that states how the professional will be paid after the contract terminates. Maybe they have a yearly, quarterly, or monthly bonus. Are they still paid that bonus if the contract is terminated? If not, then some strategy needs to be utilized by the professional. They shouldn’t give notice until after they’ve received whatever the last bonus is to make sure there are not some shenanigans on the employer’s part. In most scenarios, if a provider or professional gives without-cause termination notice, there’s also language that states the employer can say, you must go home.

It would be best if you didn’t work here anymore. However, they do have to pay out whatever that notice period was. So, if it were 30 days, the professional would still be paid whatever their base was for those 30 days. But when there are bonuses involved, it gets a little bit trickier. And so, you want to ensure that there’s a language that protects the professional and ensures they get their bonus. Some ways of doing that would be putting language that states that the compensation, if earned, will be prorated based on where they are in the contract year. So, let’s say someone has end of a year bonus, they’ve earned it through six months, they give notice so that bonus will then be prorated to what the kind of yearly bonus would be to those six months, something like that.

Summary

So, those are the ways that a contract can be terminated. The term ends, mutual termination by the parties, breach of contract, and for-cause termination of someone isn’t fulfilling the terms of the contract. Unlike without-cause termination, either party can terminate the agreement at any time, for any reason, with a certain amount of notice to the other.

Other Blogs of Interest

• Can an Employee Refuse to Sign a Non-Compete | Employment Contracts
• Breach of Employment Contract Examples | Employment Agreement
• Is There a Penalty for Early Termination of an Employment Contract?

Can an Employee Terminate a Contract at Any Time?

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

Employee Contract Termination Without Cause

Without-cause termination is going to be. If one party breaches the contract somehow, how can the other party terminate the contract for the breach? And in most of the for-cause termination clauses, it’s going to 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 breach. 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 said they would. The employee lets the employer know: you’re in breach of the employment contract, you have 15 days to pay me my bonus, or I can terminate the agreement immediately.

The employer can no longer terminate for-cause if the employer does pay the bonus. And then they could go to the last way of ending the contract without-cause.

Termination Notice Period

In every employment contract, this is very important. There should be a without-cause termination. It means either party can legally terminate the agreement at any point, for any reason, with a certain amount of notice to the other party. Usually, that notice period will be between 30 to 90 days. Why is this important? Suppose an employee takes a job and maybe they were lied to by the employer. In that case, if they’re on a production-based compensation from collections, commission, percentage, encounters, and healthcare RVUs, it doesn’t matter. But suppose an employee agreed to the contract and the employer gives no guaranteed base, daily rate, or guarantees. In that case, the volume is not nearly what they expected it to be or what the employer said it would be. They don’t have a way to get out of a contract without-cause. 

The workers won’t have an exit 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 employment 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 assigned. I mean, hopefully, the employee could check on those in advance of signing the employment agreement. Sometimes, they’re not. 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 the Without-cause, employees can insulate themselves from being stuck in a terrible situation for a long time without recourse.

Safety When You Need to Terminate an Employment Contract

So, can an employee terminate a contract at any time? If they have without-cause termination, remember 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 were to go before the end of the notice period. In that case, the employer could theoretically have damages and sue you for lost profits, recruiting, or replacement. So, if you have a notice requirement in your employment contract, you want to ensure that you give the proper amount of notice, work it out, and then move on and find a new job.

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 a contract isn’t closed in another way after the initial period ends, it’ll just continue forever 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, and that would be it. The parties can go their ways. 

What Are the Reasons for Employment Contract Termination?

Now, regarding terminating the contract, 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 that states 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. And so, in that case, if one of the parties believes the other party 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. And then 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, and 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 dental associate agreements 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 of that 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 some malpractice insurance is involved and tail insurance is needed, it will 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 if 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 helpful—kind of an overview of termination of an employment contract. 

How You Can Terminate an Agreement

You probably shouldn’t, and your employment contract probably prohibits it. In any agreement, it’s going to state how you can terminate an agreement. It could be for-cause, without-cause, mutual termination, or maybe the initial term ends. But in most cases, I mean most contracts are terminated without-cause termination. Without-cause termination, either party can terminate the contract with a certain amount of notice to the other. Typically, around 30 to 90 days is a standard amount for most employment agreements. Suppose you are an employee, and for whatever reason, you don’t want to work for the employer anymore. In that case, you must follow those terms written on the without-cause termination notice.

And it always needs to be written. It’s going to state that you must write a letter. And then, it will also say if it’s a 60-day without-cause termination. The employee has to provide it 60 days prior, work it out, and after the 60 days are over. The employees are free to go once the contract terminates, and the employees are free to move on. They want to go where they want to go after that—considering if there’s a non-compete or a non-solicit. Still, we’re not going to get into that today. 

How Do Employees Communicate a Notice?

The most crucial part as far as this goes is that it will be called “notice” or “notices.” It’s toward the back of the employment agreement initially provided by the company. And this will state who, then how you need to provide notice if there is communication.

An employee could provide in writing a certified letter or overnight hand delivery of whatever termination notice you’re going to provide. And that would then be considered adequate notice. Very few contracts allow email as an effective notice medium. If you gave, let’s say, you wrote an email telling your employer. I’m giving you without-cause termination notice, and I have 60 days. X will be my last day of work. I appreciate the opportunity. Well, if the email is not an effective communication medium within that notice section, that’s not considered effective notice. And then, the employer could make you work for another 60 days until you provide adequate notice. So, that’s the essential part. You need to look in the notices section and determine if the proper way to terminate the employment agreement includes email. 

I can tell you if I review a hundred employment contracts, 98 of them will not include email or fax. And you 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. It depends on whether you work for a small practice or a vast conglomerate with locations in every state. It’ll be impossible to hand-deliver the notice if you must provide notice to the headquarters, and that’s halfway across the country. 

The Consequence of Notice Not Received

To be safe for the most part, you need to write a letter. You’ll have to print it out and send it via certified mail that the employer is using. 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 probably your boss plus the legal apartment of the company as well. If you look through, how much notice do I have to provide? And then how do I have to provide effective notice? You’ll be safe. 

I have a couple of scenarios, and people have called me after the fact. And they’ll say I sent a letter to my employer’s email. I told them I was going to terminate the employment contract, and they didn’t say anything. I assumed that my contract would end on a specific date. The employer was mad about the employee leaving the company. The employer ticked off that they were leaving. So, what they did was they just sat on it for 45 days. And then, 15 days before the physician thought he was going to leave, they said, you didn’t provide us with effective notice. Email isn’t an effective form of communication to provide notice. You owe us another 60 days until you give us adequate 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, and then he had to return to the new employer. He would say, I apologize; I will have to delay my start date by almost two months. That was a tough pill to swallow for the physician. If you follow the terms of the notice section, then you should be okay.

Consequences of Breaking an Employment Contract

What are the consequences of breaking an employment contract? The first issue is what is considered breaking a contract? Some think just exercising their right to terminate the agreement breaks the contract. I don’t think of it that way. You don’t give proper notice when I think of breaking a contract. You simply leave the job without following the terms of the agreement. In that scenario, what are the potential consequences? Let’s say professionals at a job are not working out for whatever reason. In almost any employment contract, there will be a section discussing how to terminate the contract. And then, within that section, there’ll be what’s called without-cause termination. Without-cause termination means either party can terminate the agreement at any time with a certain amount of notice to the other party, generally between 30 to 90 days.

Breach of Notice Period Agreement Might Cause Legal Damages

Let’s say the professional walks in on Monday and says, I’m leaving tomorrow. Still, they had a 60-day without-cause termination notice requirement. Well, if that does happen, the employer could then potentially go after. When I say go after, I mean legally go after them, sue them for breach of contract. And when you sue somebody for breach of contract, it can involve several damages. There could be lost profits for what they would’ve expected that employee to generate during those 60 days. They could also go after the replacement value. They could go after the employee if they had to find a costly short-term replacement. There could be damages for recruitment fees in trying to find that employee’s replacement. They could maybe go after them to get back a signing bonus, relocation assistance, licensing fees, and credentialing if they’re a healthcare provider.

So, if you break a contract, you walk out and don’t fulfill the terms of the agreement. The professional may be liable for several things. When I’m having a consultation with somebody unhappy, they say, well, these are all the things the employer is not doing right. They’re not paying me my bonus in time, or they’re making me work more than that in the contract, or I have to take twice as many calls as they said I would. Okay, just because they’re doing it or breaking the contract doesn’t mean you can leave and then cite that as a reason. 

What Should You Do If Your Employer Is Breaking a Contract?

If you believe the employer is in breach of contract, you need to provide them with written notice that states you are in breach of contract for these reasons. And then typically, there’d be some language that states you can cure the breach, usually somewhere between 15 to 30 days. And if the employer does fix the problem, then the employee cannot terminate the contract for-cause.

If you can terminate it for-cause, usually, it can be immediate. You give the employer written notice that they’re in breach of contract and if the employer does nothing. It would be the option of the employee to terminate it immediately. That is simply different than the employee just breaking the contract. It would be best if you went through it to protect yourself under the terms of the agreement. And even if the employer is not fulfilling their terms, you still must give them notice. You still must wait for the cure period. Then if they fix whatever the problem was, you still can’t just break the contract and jump immediately to a new position.

How to Ensure Your Safety if You Need to Break an Employment Contract

To protect yourself, read the contract, see how the contract can be terminated either for-cause or without-cause termination, and follow the requirements. Suppose you must give 60 days’ notice to terminate the agreement without-cause. In that case, you must provide 60 days’ notice, or you can potentially open yourself up for a lawsuit in damages. Lastly, there will be a section in the contract that states how to give effective notice. What I mean by that is it will say to provide proper notice. You must send certified mail, hand delivery, a written letter to the address of the business or the attorney of the firm, or whatever. 

If you don’t give effective notice, It is not considered a proper termination. Means you don’t follow that notice section. And in that scenario, the employer can say, “Well, you owe us another 60 days until you give us effective notice.” So, follow the termination section, and follow the notice requirement. In that way, you can avoid paying anything back to the employer or damages for lost profits, recruitment fees, etc. I went over it at the beginning of the video.