How to Write A Professional Contract Termination Letter (Email Templates+Samples)

Before getting into writing a contract termination letter, it is very important to know how an employer and a contractor work. They always sign a contract that contains the details that both parties need to beware of, and the benefits that both parties will get before getting the contractor to perform a specific task for the company. When the contractor is no longer needed in the company or may have completed the specific task, they can terminate the contract with a termination letter to end their relationship.

A contract termination notice is a written document by the employer intended to end the business relationship with an employee. It can be sent using a letter form or an email form.

A contract termination letter is a letter used by the employer to legally notify the employee of the end of the contract. There are three general types of contract termination letters: 

• With cause: When the contractor’s work performance/ behavior does not meet the expectations or violated rules multiple times after warnings.
• Without cause: When the company decides to downscale or due to some larger market factors that require it to terminate some contractors to save up the costs.
• End of contract: When the contractor’s contract with the company has come to an end and the employer decides not to renew the employment. 

The two main purposes of a contract termination letter are that it helps the employer keep track of their termination and employment record, and clarifies the statement telling the employee that he/she will need to find a new job.

Reasons why a contract termination letter is always necessary:

You might have watched many movie series with the boss shouting “You are fired!” but that is not the right way to terminate an employee. There are still procedures that they have to go through when terminating someone.

• Ethical/manners: Regarding ethical issues, you need to inform the contractor formally because no one likes to be terminated without being formally noticed. It also shows that you have good manners in treating contractors.
• Maintain a good relationship with the contractor: Secondly, terminating a contract professionally with the contractor means that both of you have agreed to end the business relationship but not ruin the relationship as there might be a possibility that you will work together once more in the future.
• Impact on company reputation: A contractor does not necessarily work for a single company. Hence, terminating a contractor’s contract may result in harming the company’s reputation if the termination procedure is not done right.

Writing a contract termination letter is no different than writing a formal letter to someone else. The letter format is quite similar.

✍🏻 Details of the contractor & employer

Firstly, you need to include the name, address, and contact information of the sender and receiver. This helps the reader know who this letter is for.

✍🏻 Date of termination

When getting into the paragraphs, you will need to include the date of termination. This informs the contractor of the date that he/she will no longer be working with the company.

✍🏻 Reason for termination

Since you are terminating the contract, you need valid reasons. 

• Lack of productivity
  The company has the right to terminate the contract when the contractor procrastinates and does not meet the requirements multiple times. 
• Rule breaking
  When signing a contract to work for a company, there are rules that the contractor has to follow. When the contractor breaks the rules, the contract can be terminated.
• Theft or criminal behavior
  Stealing facilities from the company or revealing trade secrets that are not supposed to be known by other companies.
• Termination by mutual ground
  Although termination may sound bad, having both sides agree to the termination (settlement agreement) is still possible. 

✍🏻 List of warnings

Then you should include the list of warnings (including the date) that you have given to the contractor before terminating him/her. This shows that he/she has been warned but the warnings are not working.

✍🏻 List of items to be handed in

Working with a company means that one can use the company’s facilities or bring home a laptop provided by the company for work purposes. When terminating the contract, you would want to take those items back as they belong to the company.

✍🏻 Other details

After including the main elements of a contract termination letter, there are still other details that you might want to include. A detailed letter will always help avoid misunderstandings.

Contract termination letter template due to layoffs

Contract termination letter template for a cause (misconduct)

Contract termination letter template for a cause (performance)

Contract termination letter template for a cause (attendance)

Sample letter for end of the contract

Notice of contract termination sample

💡 Clearly list reasons for termination with evidence (if any).

Terminating an employee without a valid reason may ruin the company’s reputation. If you plan to end the employee’s relationship with the company, you need a valid reason. It is a persuasive way that tells the employee what has he/she done wrong.

💡 Express disappointment and regret professionally.

Writing a contract termination letter means you will be losing one labor job for the company, and you would always hope that there are more people in the company to keep the work going. Hence, you should express your disappointment and regret professionally that you have no choice but to terminate the employee.

💡 Remember to say thanks.

Although you are going to terminate someone from the company, you should always express gratitude. Expressing gratitude at the end of the letter shows your appreciation for the contribution that he/she has made. 

💡 Do not use sarcasm, jokes, or inappropriate language.

No matter what reasons caused the employee to be terminated from the company, you should still maintain a professional tone in the letter writing. This is because you might be confronting him/her in the future and you wouldn’t want to end this business relationship awkwardly.

💡 Create a formal subject line when writing/sending a contract termination letter via email.

Sometimes, you might have employees who work from home and you could not hand in the contract termination letter directly. This is when you will need to send an email but a professionally written subject line is required to make the email clear.

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— Originally written by Ryan Goh —