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How to Cancel an Employment Contract

by Bob Kelly, studioD

While an employment contract arises out of mutual agreement between an employer who makes an offer and the employee who accepts, cancellation is not as easy or straightforward. The employment contract binds the employer and the employee to its terms and usually prescribes a specific duration (See Reference 1). If either the employer or the employee wishes to cancel the contract before time, there are several considerations they should make. Improper cancellation of the employment contract can cause the aggrieved party to take legal action.

Confirm Terms

Read through the employment contract to ascertain whether it was an employment-at-will contract or one that the parties could only cancel under certain circumstances. If the contract was based on the principles of at-will employment, then either party can freely cancel it. At-will employment contracts allow an employer to fire an employee for any or no reason at all and grants employees the same freedom to leave employment at any time without adverse legal consequences (See Reference 2). However, if the contract specifically states that employment can only be terminated for cause, then the reason for cancellation has to fall within the causes set out.

Restrictive Clauses

Establish whether there are restrictive clauses that come into effect for cancelling the contract and prepare to honor them (See Reference 3). An employment contract is ordinarily drawn up for an employment relationship that will last for a considerable period of time. Consequently, the employer would want to protect his investment in the employee and might insert clauses to do so in the event that the employee leaves. Non-compete clauses that prohibit former employees from immediately starting their own firms to rival the employer, non-disclosure clauses that prohibit employees from divulging the employer’s confidential information and financial penalty clauses are some of the restrictive provisions.

Written Cancellation

In the same way that an employment contract is written for clarity and to avoid any subsequent disputes, cancellation should also be in writing. An employer’s or employee’s intention to end the contractual relationship is best put down in writing primarily for the purposes of having an accurate record. Written cancellation also allows the cancelling party to express himself, giving reasons for the decision and expressing gratitude for the time spent within the contract. If it is the employee who has chosen to leave, the written cancellation could also include details of the handover process and final reports on any pending matters.

Notice Requirements

Check the contract to confirm the notice period and submit the cancellation within the prescribed time (See Reference 4). Notice is an integral part of any contract because it allows the party being served to prepare themselves for the transition. Failure to adhere to the contractual notice period is adequate grounds for a legal claim of unlawful termination of the contract. Consequently, an employee who wishes to leave employment must tender his resignation within the notice period which is usually 30 days. Conversely, an employer intending to terminate the contract ought to give the employee written notice and where necessary state the grounds for termination.

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