How To Write a Contract Termination Letter (2024 Examples)

Updated 17 April 2024

Handling a contract termination process for an employee or business partner is an important task for a company in any industry. To conduct this process professionally, many individuals compose and send a letter of termination. By learning about this type of letter, you can determine which approaches can best address your situation, if you work in HR or a similar role. In this article, we define what a contract termination letter is, explain why it's important and provide both a template and example letters you can use during your writing process.

What is a contract termination letter?

A termination letter is an official letter informing an employee that a company is dismissing them from a job position. It typically details the reason for this turnover according to an employee's contract, describes some next steps this employee may take and explains any benefits or compensation they can receive afterwards. For example, staff members may receive severance pay if they work in a job position for at least two years prior. A termination letter can also allow one company to end a legal partnership with another business, then detail any last transactions between them.Related: What Is Termination? Definition, Examples and Process

When do employers and businesses use letters to end a contract?

A company can use this type of letter when certain situations occur that cause the contract of an employee. According to the Employment Act, companies in Singapore can choose whether to send this notice or only administer wages in the time before a contract ends officially. Sometimes both contingents agree on this termination beforehand, while other cases involve an involuntary dismissal. Companies can end a contract for multiple reasons according to the Contracts (Rights of Third Parties) Act, and they may use a letter during the process to restate the terms to restate a contract's termination clause.Here are specific circumstances where an employer might use this type of letter:

Probation period: Some employees may complete three to six months of provisional work before becoming staff members, and managers can terminate their employment during this timeframe.
Breach of contract: When an employee misses work for over two days without notice or violates their contract in another way, an employee can terminate their services.
Employee misconduct: An employer can end a staff member's contract if their behaviour violates a company's code of conduct or they otherwise misrepresent their workplace.
Retrenchment: If there are external situations, like a decreased yearly revenue, a company may terminate an employee's contract, especially that of its executives to reduce costs or restructure.

Why are letters of contract termination important?

Consider the following reasons why this type of letter is important:

Maintains an optimal reputation: Offering a termination notice can help a company increase its professional image, as it's typically a courteous gesture rather than lawfully required.
Provides an official record: If a legal dispute occurs at a later time, a documented termination notice can become a helpful resource.
Assists an individual's transition: Giving employees a termination letter can allow them some time to find a new position or handle any external situations.
Preserves a relationship between companies: Showing respect and gratitude through a letter of termination can improve the chance that two companies can have a future partnership.

How to write a termination letter

Here are some steps you can follow to write an effective termination letter:

1. Notify the employee or company of a termination date

At the beginning of the letter, state that a company has terminated an employee's services and specify the date it ends. This approach can help an employee understand the purpose of the letter, preventing any misunderstandings in the future. In a letter to a company, it may be helpful to state the terms of a business partnership contract directly after this notice. To formalise either type of termination letter, be mindful to address employees using their full name and identify any organisation involved.Related: How To Write a Promotion Announcement (With Template)

2. Explain the terms for contract termination

In a letter to a staff member, detail the reasons why you're ending their employment contract. Ensure your explanations remain clear and concise to avoid the possibility of misinterpretation. You can include evidence to support these assertions, like the specific days an employee was absent from work or details about a company's restructuring process. Depending on your preference, it may be helpful to express appreciation for a staff member's hard work.When writing a letter to a business, be sure to review the original contract so you can restate the termination clause accurately. You can also review the guidelines from the Ministry of Manpower to ensure you can comply. Use a professional tone during this section to better maintain a strong connection with another company.Related: A Complete Guide To Business Partnerships (With Definition)

3. Describe the next steps

Next, explain details about an employee's compensation after their termination date, including the possibility of severance wages, payment for unused leave or vacation days and any salary owed. It's also important to describe what happens to additional benefits, including a health or life insurance policy. Consider including information from the original contract to support these decisions.When ending a business contract, describe any obligations you plan to fulfil until the termination date. A company may promise to complete or receive any outstanding product orders, then process any financial transactions. Afterwards, you can explain which obligations a company may forgo and important information about shared ventures.Related: What Is a Contract Employee vs. a Regular Employee?

4. List materials they may return or send

In the following paragraph, notify the employee of any property they may return. Some examples may include a company cell phone, ID badges or parking passes. Consider using a bulleted list format to enhance the document's clarity. When composing a letter to a company, you can request documentation from the other party to complete the contract termination process.

5. Include additional information

To conclude an employee letter, provide the date of their last paycheck. Then, add contact details for their human resources (HR) representative in case they have questions about their compensation. It may be helpful to attach documentation relevant to an outgoing employee, like a non-disclosure agreement, so they can store these files properly. When finishing a business termination letter, you can also request a confirmation of receipt.Related:

Termination of contract template

Here are two termination letter templates to help you draft a letter:

Employee termination letter

Here's a template for an employee termination letter:[Date]Dear [employee first and last name],This letter is to inform you that your employment with [company name] ends as of [date of termination].Here are the reasons for your dismissal:[List reasons for termination]This decision is final.You can receive: [List compensation and benefits]Your health insurance [explanation of what happens] while your life insurance [explanation of what happens].Please return [list all company property].If you have questions regarding your compensation or benefits, please contact [name of their HR representative].Sincerely,[Your name]Related: How To Write a Job Rejection Email: Template and Example

Business contract termination template

Here's a template for this type of notice:[Date]Dear [recipient name],I am writing to inform you that [first company name] no longer requires the partnership of [second company name]. We plan to terminate our contract on [date of termination]. [Explain how this action complies with contract terms].After today's date, [first company] plans to cease all shared operations with [second company] name, except for any outstanding orders or processes. We are ending this partnership because [significant reason].Please send us [necessary documentation]. If you have questions, please contact me at [phone number] or [company email].Sincerely,[Your name]

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Contract termination sample

Here are two samples of termination letters:

Employee termination sample

Here's a sample of an employee termination letter:May 1, 2021Dear Marcus Ong,This letter is to inform you that your employment with Stylish Incorporated ends as of May 12, 2021.Here are the reasons for your dismissal:Over the past six months, Stylish Incorporated has experienced financial difficulties. While we've explored many options to ease these issues, we concluded to reduce our workforce by 20%. As a result, we regretfully must eliminate your position.This decision is final.You can receive severance pay for one month past May 2021.Your health insurance policy extends six months past the termination date, while your life insurance policy extends for one year.Please return:

Your badge
Your facility keys
Your laptop

If you have questions regarding your compensation or benefits, please contact your HR representative, Lim Tan, at his company email.Sincerely,Cherilyn Seah

Business contract termination sample

Here's a sample of a business contract termination letter:May 2, 2021Dear Joyce Hong,I regretfully inform you that Videos Unlimited no longer requires the partnership of Great Media Incorporated. We plan to terminate our contract on May 15, 2021. This action complies with the protocols in our termination clause regarding notice time.After today's date, Videos Unlimited plans to cease all shared operations with Great Media Incorporated, except for any outstanding orders or processes. We are ending this contract because the company is changing industries. However, we hope to partner again in the future if this option is agreeable.Please send us all documentation from our shared bank accounts, so we can close them. If you have questions, please contact me at 8888 8888.Sincerely,Alvin Teh