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How to Terminate a Contract of Employment

by Ruth Mayhew, studioD

Employment contracts are designed to protect both the employer and the employer. Employers get a guarantee that the employee will serve a certain number of years, at a certain pay, and handle certain duties. Likewise, the employee gets a guarantee of a certain number of years at a certain pay. When the relationship turns sour, however, one or both parties might want to terminate the contract. To do so, you must ensure that terms of the contract are not violated.


Carefully weigh your decision to terminate an employment contract. If you're simply discouraged by an isolated incident that occurred at work, take a day or two to decide if it's really worth ending your working relationship over an episode that might never happen again. If you're the employer contemplating whether to end the contract, and you are basing your decision on a single occurrence, think twice about terminating the contract and consider having a candid discussion about the matter instead.


The process of terminating an employment contract is similar to ending any other type of binding agreement. Employment contracts contain terms and conditions to which both parties must strictly adhere. When one party violates a mutually agreed-to clause, she's required to follow the steps set out in the termination clause. For example, a violation that justifies terminating an employment contract might be a breach of confidentiality or disclosure of trade secrets. Termination clauses typically spell out the steps that the employer or the employee takes to sever the relationship.

Prohibited Action

Employment contracts differ significantly from at-will employment because neither party can exercise her right under the employment-at-will doctrine. Employment-at-will means either the employer or the employee can end the working relationship at any time, for any reason or for no reason, with or without advance notice. Employment contracts are an exception to at-will employment and, therefore, must contain provisions for terminating the employee. Failure to follow the provisions set forth in an employment contract could result in a lawsuit and claim for damages, such as lost wages and benefits.

Termination Clause

The parties to a contract of employment are bound by the termination clause. Some require 30 or 60 days' written notice to terminate the agreement, depending on the employee's position and whether the organization can easily replace her or find someone to serve in the interim during the search for a permanent replacement. If the contract doesn't contain specific instructions for ending the working relationship, provide written notice of intent to terminate the agreement. Ensure you have proof that the other party received it by requiring signed receipt or another form of a written acknowledgement.

Legal Counsel

Terminating a contract of employment could be just as arduous a process as the initial negotiations, which is why seeking legal advice is a prudent choice if you find yourself at the crossroads of whether to continue the employment relationship or end it. A 2011 report from employment attorney Jonathan Ben-Asher of New York-based Ritz Clark & Ben-Asher suggests that executives ensure that termination clauses protect their reputations and financial interests.


Terminating a contract of employment isn't always a snap decision or one to be taken lightly. A contract for employment -- like any other business contract -- contains rights, obligations and responsibilities of the parties, as well as the terms and conditions required to dissolve the employment relationship, which can be quite complex, based on the circumstances.

About the Author

Ruth Mayhew began writing in 1985. Her work appears in "The Multi-Generational Workforce in the Health Care Industry" and "Human Resources Managers Appraisal Schemes." Mayhew earned senior professional human resources certification from the Human Resources Certification Institute and holds a Master of Arts in sociology from the University of Missouri-Kansas City.

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