First published on Thursday, June 4, 2020
Last updated on Monday, July 1, 2024
An employment contract is a document that marks a mutual agreement between an employer/business and an employee.
This contract occurs in various ways and can outline each party's obligations to the other including termination clauses and conditions.
In this article, we're going to dive into the complexities of the end-of-contract period. When contractual obligations end because of one party, the other party, or just because the employment contract reaches its termination date.
Let's dive in...
Who has the right to terminate a contract?
A contract ends when one of the two or more parties involved chooses to end it through a verbal or written agreement.
The two most common ways that a contract of employment ends are when:
You as the employer choose to dismiss an employee
Your employee resigns
There is also a possibility that both parties simultaneously decide to terminate the contract. This scenario is called a mutual agreement.
Regardless of what triggered the termination, the correct procedure must be followed to ensure the process is fair and aligns with workplace procedures.
Depending on the circumstances, if an employee is dismissed or resigns, their employer still owes them their financial entitlements. This can include paid notice, and their final payment, which includes any entitlements owed to them like accrued but untaken annual leave.
Make sure you clearly outline the terms relating to ending employment in your employment contracts and employee handbooks.
What can lead to a contract termination?
It's important to keep in mind that most contracts do more than just outline the responsibilities of a person performing a role. The acceptance of a contract also means both parties have obligations under the contract, and you will both be responsible for upholding the agreed obligations.
However, events occur that can lead to a party deciding that the contract should be terminated.
For example:
The end of the original contract period
Performance of duties prompting the end of contractual obligations
Contract termination due to mutual agreement
Reasons beyond your or your employee's control leading to a contract being frustrated
Ending the contract by giving notice for convenience at any time (this termination clause is common in government contracts)
Contract breaches leading to contract termination
The end of contract notice period
One crucial factor to keep in mind when terminating contracts is making sure the other party is given adequate notice of the impending termination. The notice period you are required to provide will depend on the terms of the specific contract you're terminating.
It's important that you adhere to these timelines to stay compliant with the law. Choosing to not follow these timelines can constitute an unfair dismissal and lead to legal consequences.
Following the right process when terminating contracts is also important if you wish to have a professional relationship with the other party in the future.
Notice periods are equally important if you are not the terminating party, and your employee has chosen to resign.
Once an employee hands in their notice, you may not be obligated to accept their resignation, but you can't make them continue at your business if they don't wish to do so. If you do accept their resignation, it's best practice to follow up your acceptance with a written document laying out the end date of their contract.
Offering reasonable notice ahead of a contract termination is a valuable step in the process even when no written contract exists.
Setting contract end dates
A contract can also simply end on the agreed-on termination date.
The date a contract ends isn't necessarily the date that a final outcome is delivered. Some things that may contribute to the end date of a contract are:
Business requirements including budgets
Market conditions
A wider economic circumstance change that affects your business or the work of the contracted employee
Your employment contract may also include extension options for the contract to continue beyond the initial contract end date. However, there have been recent changes to fixed-term contracts and the ability to extend them. These changes may have implications on your ability to extend an employment contract.
Managing the end of contract period with BrightHR
As a business owner, ensuring that your contract terms are sound and up to date with employment laws is part of your duty.
Issues like unfair contract terms can lead to you as the terminating party landing in legal hot water if a contract breach occurs.
That’s why not only does BrightHR give you access to an extensive library of HR document templates including contracts. But you also gain access to a team of employment relations experts. These experts are available 24/7 to offer you prompt advice and help you stay compliant with the ever-evolving legislation.
Not a BrightHR customer? Learn more about BrightAdvice and discover how you can get unlimited HR advice and business guidance without legal fees.
