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Top 3 Reasons Why You Need a Clear Termination Clause in your Employment Contracts

As you are sitting in your office and going over the mail you come across a letter from a lawyer – your ex-employee is suing you for wrongful dismissal!

The moment that you start thinking about what went wrong is when you realize that if you had only had a termination clause all of this would have been avoided.

Dismissal of employees is one of the hardest tasks that a business owner needs to perform. It is a tricky moment in the employer-employee relationship. The situation can get much more difficult, however, if the relationship is not ended in the right manner. This means that both of the parties understand the responsibilities that arise from terminating the employment.

Recently I had a client ask me whether it was acceptable to terminate an employee via text message. I advised that this would not be acceptable and it is important to ensure that you have given appropriate warnings beforehand.

The process is hard for both sides and there is no doubt of that. However, the main goal of the employer must still be to protect the company’s interests while treating the employee with dignity, respect and understanding.

One of the easiest way to achieve this win-win situation is to have a termination clause in your written employment contract

It can include reference to employee conduct and policies that result in warnings which may lead to termination.

A termination clause is a clause included in your employment agreement signed between an employer and employee upon dismissal covering the behaviors of both related to each other after termination.

What can go in a termination contract?

  1. Statement that employment is discontinued
  2. Clear termination dates
  3. Statement that no lawsuits will be filed against the employer for actions prior to this contract
  4. Confidentiality clause
  5. Non-compete clause

In fact, you can add or remove clauses as you see fit for your business. If you carry out specific activities then your termination contracts will need a few detailed clauses, it is best to seek the advice of an experienced lawyer.

Now, do you actually need to have termination contracts?

Definitely YES!

Why You Need Clear Termination Contracts

  1. 1.     Lawsuits.

Yes, nobody likes the sound of that. And they come when you least expect them. Your termination clause can save you thousands of dollars in legal services.

Even if you think that all is set and there is nothing to worry about, your business is not protected:

You have dismissed a sales person with due notice and you say goodbye for good. He goes home, looks at his contract together with his wife and she discovers that he has grounds to sue and receive a severance pay ten-fold of what he received.

I know it seems hard to think of every possible lawsuit and you don’t have to. A quick consultation with a lawyer will save you hours in drafting and you can be sure that you have everything covered.

  1. 2.    Competition

The second reason behind termination contracts for many businesses is competition. If we are talking about key employee or a specific process or product you have developed, your business is only safe with a professionally drafted termination contract.

A lawyer can make sure that important areas of your business are covered, and that the termination clause refers specifically to the features that make your business different.

For example, a common practice is to “headhunt” key talent of competition and try attracting them to one’s business with better employment conditions.

If employee loyalty and engagement is low, your staff will run. How would you feel about hearing that your competitor has adopted your exact marketing strategy?

If you don’t have a non-compete clause in your termination contract, nothing can stop your ex-employees from going over to the other side.

  1. 3.    Company reputation

Your termination clause can also protect your company from not so happy employees, gossip, and wrongful information distribution. In this digital age, everyone can write a Twitter update about everyone. Yes, about your company, too.

In an era of review marketing you need to focus on making customers happy. You can’t control what they say about your company that can ruin your reputation. But you can at least control what employees say after leaving the company.

With a clear termination clause in hand, you can also make sure that personal disagreements will stay out the business.

If you are still wondering whether you should have a termination clause drafted, just think about your company secrets posted on your Facebook page and emailed to your competition.

Draft a termination clause today to protect your business and avoid unpleasant surprises.

Termination contracts are a business tool that give you peace of mind and helps people move on to their next employment.

Make sure you cover the three key areas we have discussed here and don’t hesitate to contact a lawyer if employment contracts are not in your expertise.