Business Law Blog

What To Know About Terminating A Contract Of Employment

Posted by Amanda Butler Schley | Apr 24, 2024 | 0 Comments

Per the United States Government, employers in every state, except for Montana, may hire employees on an “at-will” basis, allowing hiring organizations to terminate staff members whenever they wish and for whatever reason, provided the rationale is not illegal. However, not all employees work on an at-will basis, and employers should generally approach employment contract terminations with care to avoid possible lawsuits. Learn the key things to know about terminating a contract of employment, and find out how an experienced Louisiana employment lawyer can assist businesses with this matter by contacting the Business Law Group at (504) 446-6506.

What Does Terminating a Contract of Employment Mean?

Terminating an employment contract means permanently ending the work obligations of an employee with the employer, and the employer's obligations toward the employee, often before any termination date that may be specified in the contract. Two types of employment contract termination exist:

  • Voluntary: A voluntary termination occurs when an employee decides to leave the hiring organization on their terms.

  • Involuntary: This type of termination takes place when an employer wishes to fire an employee (for example, if their job performance is poor), eliminate redundancies, or downsize.

Worth noting is that employees who are away from work due to illness or because they are taking a sabbatical, in addition to furloughed staff members, are technically still employed provided the employer has not issued a termination notice. According to the Department of Labor (DOL), individuals who lose their jobs still maintain certain rights, including keeping their health care coverage for a limited period and gaining unemployment benefits (so long as the job loss was not the worker's fault, as determined by state laws).

What To Do When Terminating a Contract

Even if an employee is performing well and meeting the contract's terms, sometimes an employer may want or need to terminate the contract. Even when this is necessary, due to budget cuts or relocating, it is important to handle the termination carefully and according to all contract terms. Employers may want to consider following specific steps when looking to terminate an employee's contract.

Check the Contract's Terms

Some employment contracts require employees to remain with the company for a fixed, specific period. For these contracts, there is typically a clause concerning early termination. Be sure to thoroughly examine the contract's terms to understand the stipulations for terminating the agreement and to help avoid possible legal penalties.

Determine Cause

For individuals hired at will, employers can terminate their contract for any reason, as long as the reason is legal; examples of illegal reasons include dismissal because of a person's disability status, gender, race, sexual orientation, religion, or race. With this in mind, consider the cause for terminating the employee and make sure it is a legal one before proceeding to prevent a potential lawsuit. For employees on fixed-term contracts, the contract may state whether the employer needs to determine cause for early employee termination and acceptable causes; if this is the case, be sure the established cause aligns with the contract terms.

Find out more about the key considerations to make when terminating a contract of employment, and discover how a seasoned Louisiana employment law attorney may help businesses with their employment-related legal issues by arranging a consultation with the Business Law Group. A lawyer may also be able to assist with employment contract creation to ensure that all the terms are clear and easily understood by both parties.

Issue a Termination Notice

Usually, the most effective method of communicating termination is via a formal, written notice. Some employment contracts may state the requirement for issuing a written termination notice to an employee for it to take effect; if the employment contract contains such language, be sure to provide written notice to abide by the contract terms. Furthermore, include the reasoning for terminating the contract if the employment contract states the need to provide cause for ending the agreement. For particularly complex employment contracts, consider consulting with an attorney to understand how to effectively produce a termination letter.

Can Employees Terminate Their Employment Contracts?

Like employers, sometimes an employee may wish to terminate an employment contract before the scheduled termination date (for limited-term contracts) or to move on to another opportunity (for contracts without a specified termination date). Employers can prepare for this and allow for a peaceful parting of ways by outlining clear terms and policies for these early departures in the employee handbook provided at onboarding. Employers can also provide annual or seasonal training that reminds contract employees of the terms and policies in place, as well as any updates that may be made. 

If an employee wishes to terminate their employment contract, the following terms or policies can help avoid a costly legal conflict and ensure an amicable departure:

  • Review the contract and employer policies, paying particular attention to clauses linked to termination and the consequences for not following these.

  • If the contract contains a non-compete clause prohibiting work in a specific area or field for a certain period, consider whether the employee has other employment prospects that are not impacted by such a clause.

  • Ensure that any requirements for written notice outlined in the employment contract are both fulfilled and carefully documented. 

  • Get a written agreement to end an employment contract and make sure both parties sign and date it.

What Are the Consequences of Breaking an Employment Contract?

Breaching an employment contract occurs when either the employer or employee violates the agreement's terms, such as failing to provide agreed wages or producing low-quality work. Below are some of the possible consequences of breaking an employment contract for employers and employees.

Employer Consequences

Employers who breach employment contracts may find that the impacted employees take them to court to attempt to secure compensation for their losses, including lost wages and benefits, which can impact how the public perceives the organization. In this scenario, the employer may decide to settle out of court, or if the employer proceeds to trial, they could experience these financial ramifications for losing the case:

  • Expectation damages: These damages compensate the employee for what they could have earned had the breach of the employment contract not occurred. 

  • Liquidated damages: These refer to the specific monetary amounts listed in the contract that the breaching party must pay to the other.

  • Attorney fees: Some employment contracts may stipulate that the breaching party must pay the other's attorney fees. Even in the absence of such a contract clause, if the employee requests these fees, the court may also decide to award the payment of these fees in some circumstances as part of the employee's compensation.

Employee Consequences

If an employee breaks an employment contract, they could lose their job, resulting in the following consequences:

  • Loss of earnings: The most apparent ramification is that the employee loses earnings due to them no longer working; even if an employee challenges the contract determination in court, it could take months to resolve, further straining the employee's finances.

  • Employment prospects: Employees terminated for breaching their contract could find it challenging to find future work in their field due to having a damaged reputation.

Contact a Louisiana Employment Law Attorney Today

In Louisiana, employers have to follow specific processes for terminating employees; for instance, an employer cannot dismiss an employee based on their country of birth or due to them having a disability. For assistance with navigating and interpreting these laws to specific scenarios, consider speaking with an experienced attorney. Understand more regarding the things to know about terminating a contract of employment, and explore how a Louisiana employment lawyer from the Business Law Group might aid firms with their legal queries by calling (504) 446-6506.

About the Author

Amanda Butler Schley

Ranked as a Top Rated Business and Commercial Attorney, I have more than a decade of experience representing boutique hotels, family-owned businesses, privately owned restaurants, breweries, artists, executives and entrepreneurs.


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