The Termination Clause: Why It Is So Important

The termination clause is the star of the show when it comes to employment agreements. The termination clause has the potential to help or hurt both parties. An error in this section of the contract could have costly implications.

Employment contracts are important to both the employer and employee. Read our recent post for a comprehensive overview of employment agreements.

What Employers Need to Know About Terminating Employees

Terminating an employee is harder than most people realize. A mistake, omission or unenforceable term could result in your agreement being essentially voided or even lead to a wrongful dismissal suit, which could lead to expensive legal fees and damages.

Terminations are complicated and have to cover a lot of “what ifs” – it can be hard to anticipate every scenario you need to define and protect for. A lawyer with experience in these contracts will be able to guide you in the scenarios and clauses that are relevant to you.

Here are some tips:

  • Have a lawyer draft your employment agreements and have a very clear termination clause section
  • Give written notice when you terminate an employee
  • Give termination pay or pay in lieu of notice – there are some scenarios where this isn’t applicable, check with your lawyer to be certain
  • If you are terminating for cause, document or record your warnings/write ups and include details – typically serious misconduct is required if you don’t have documented transgressions and warnings
  • Provide a reference with all the facts (employment date, title, position, duties) – it’s advisable that you provide that info without any further comments
  • Be very clear and concise with your employee about their termination package and next steps

As a business owner it is often smart to err on the side of too much information in agreements. There is less to try to interpret when it’s all spelled out.

It is important to ensure that you follow the common law guidelines outlined in ESA (Employment Standards Act) or provide an explanation with a valid reason for why you aren’t.

Termination clause in employment contract

In addition to being very precise and clear in language, you should ensure your employee understands the terms and what they are agreeing to. While not understanding a term doesn’t give them grounds to dispute the agreement, things are a lot easier if both parties understand the intent of the agreement and the terms.

Constructive Dismissal

Due to COVID19 and vaccinations policies, Constructive Dismissal is becoming a very prominent term. While the term is used frequently, there is still a common lack of clarity on the details.

Constructive Dismissal occurs when a change in job, conditions or terms causes the employee to resign. Without their consent – either actual or implied – to the change, their resignation can be classified as Constructive Dismissal.

The change may be major, for example requiring a vaccine and proof. Or it may be a series of small changes that alter their conditions significantly over time.

Given all the complexities and the potential costs if something goes wrong, it’s a smart business decision to work with a lawyer to understand the various scenarios and ensure your employment contracts protect you and are specific to the employee.

We’ve touched on some of the common issues with termination clauses – please note that there are potentially many other factors to consider, depending on the specifics of your business and your employee’s duties etc.

Learn more about how CEO Law can help ensure your employment agreement offers the protection your business needs. CEO Law has created some pre-set packages to help you with cost control and to ensure you get the exact services you need and nothing you don’t.

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