How to write a good termination letter

1st March, 2017

While it’s never a good thing to have to write a termination letter, it’s essential to get it right so it doesn’t land you in hot water.

Over time, what I’ve discovered is that good termination letters follow a formula to ensure they cover all the information the employee needs about the end of their employment.

Formal notice of termination

The first sentence or two of the letter should confirm the purpose of the letter is to put the employee on notice of the termination of their employment.

We always advise employers to avoid flowery or emotional language such as ‘regretfully’ or ‘unfortunately’.

Although it might seem blunt, the more sparse and factual the letter, the less issue the employee is likely to have with it.

READ: Terminating employment: what you need to know

Reasons for termination

The letter should record the main reason or reasons for the decision to terminate the employee.

These are typically linked to ongoing poor performance or bad behaviour, or the redundancy of their position.

The reasons should generally be kept broad and with neutral wording.

The important thing is that the reasons for termination are clear to the employee, and you must be able to back them up if disputed.

Warnings and opportunities to rectify

The termination letter must provide details of the written warnings given and other discussions that you have had with the employee prior to the decision to terminate.

You should view this part of the letter as evidence that may become relevant to an unfair dismissal application.

The Fair Work Ombudsman service provides some very helpful template termination letters [.doc].

The Ombudsman’s template termination letter suggests that you summarise the lead up meetings and warnings letters regarding the performance or conduct issues.

For some employers (especially small business employers), the warnings and coaching feedback may not have been quite as structured.

If this was the case for you, you should still ensure that you record the times that the employee was made aware that they were not performing satisfactorily.

Be sure to record when the employee was first notified of the issues, to highlight that the employee has been given ample opportunity to remedy the issues.

READ: Calculating the costs of hiring the wrong person

Notice period and termination date

The termination letter then needs to state the notice period to which the employee is entitled.

This will be the more generous of what the law requires (ie. under the National Employment Standards or relevant Award) and what the employment contract provides.

You should also bear in mind that older employees (aged over 45) are generally entitled to an additional week’s notice.

Generally, you have three options:

  • You can require the employee to work for the duration of their notice period
  • You can have termination take effect at the end of the notice period, but put the employee on ‘gardening leave’
  • You can terminate the employee immediately, and pay them in lieu of notice.

Depending on what notice period the employee requires and what approach you decide to take, you need to confirm the exact termination date.

You will then calculate all accrued entitlements and notice period pay to that date.

Final pay and accrued entitlements

Although it’s not strictly required, we recommend including a short calculation table that shows the outstanding pay and accrued entitlements up to the last day of employment.

You should also advise the employee when they can expect to receive the final payment or payments.

Employees who are required to work throughout their notice period will typically receive their pay via normal payroll.

Employees who are receiving payment in lieu of notice will want to know when they can expect to receive the payment.

Requirements for finishing up work

There are bound to be some practical aspects of the employee finishing up work that need to be addressed.

The return of work equipment and documents, handover of files, redirection of emails and handing in of keys are just some of the logistical issues surrounding termination.

Depending on the nature and seniority of the employee’s role, you may also want to set some expectations around transition of work and put in place a handover plan.

While you should avoid overloading the termination letter, it is worth recording any important handover and exit requirements.

Information for the employee going forward

The last paragraph of the termination letter should include information to assist the employee going forward.

You should include the contact details for the FWO service if the employee wants to seek advice about their employment terms and entitlements.

Lastly, you should include the contact details of the person within your organisation that the employee can contact if they want to discuss the termination letter or any issues relating to their termination.

The contact person should be a senior person who is authorised to answer the employee’s questions and help resolve any issues.