Did you know that a typical company loses about 6% of its employees due to layoffs?
When this happens, contract termination is inevitable.
To formalize your company’s intention to cancel employment, it’s your job as the HR manager to send out contract termination letters.
The problem arises when you (unfortunately) have to do it on a large scale, which entails legal requirements too.
So, what’s the best you can do?
In this blog post, we’ll give you more insights on contract terminations. However, let’s first discuss the common reasons why this happens.
By the end of this article, you’ll learn how to handle employment contract termination procedures efficiently — especially when you need to let go of many employees at once.
Common reasons for terminating a contract
When entering into legal employment relationships, it’s important to acknowledge that terminations can happen. Common reasons for contract termination include the following:
- Bad economy
- Bad fit
- Poor performance
- Breach of contractual obligations
- Mutual agreement
Let’s go over them briefly.
Bad economy
In business, it’s not uncommon for contracts to be terminated when there are changes in the economic environment. Companies may find that the terms of a contract no longer make financial sense due to fluctuating market conditions.
Bad fit
Sometimes an employee may not perfectly align with the job that they’re offered — 74% of employers admit to hiring the wrong person and the company nor the employee benefit in this situation.
Poor performance
Before even considering contract terminations due to poor performance, your company must be clear about what counts as ‘bad performance’. At the beginning of the hiring process, communicate what is expected of the employee, along with his performance metrics. If the employee still fails to follow through on responsibilities, it’s legitimate to treat it as a bad performance.
Breach of contractual obligations
Terminating a contract due to a breach of contractual obligations is a serious matter. If there’s a contract violation, it’s logical for the employer to terminate their employment contract early. If not dealt with promptly, such breaches can significantly harm companies’ standing.
Mutual agreement
A mutual agreement to end the contract between employees and employers is when both parties understand that, for whatever reason, the employment relationship must come to an end. The end result should be a respectful parting of ways in which both sides feel satisfied with the situation.
So how will you know that it’s time to terminate an employee’s contract? One is to simply have regular performance reviews. Here are a few tips.
Doing employee reviews or annual reviews
Regular employee reviews contribute to a healthy workplace. It gives you the insight you’ll need to make like to renew or terminate a contract.
Here are some tips for conducting effective employee reviews:
- Ensure that all parties are clear about their responsibilities.
- Maintain consistency when conducting employee performance reviews by using the same criteria each time.
- Encourage two-way dialogue so that employees feel comfortable voicing their opinions and concerns during the review session.
How to terminate a contract
When it’s time for your termination policy to kick in, you should always ensure that the contract termination is necessary and allowed under the legal terms of the agreement.
You should document all relevant information before sending out the letter of termination and check whether any applicable state or federal laws govern terminations of contracts in the employee’s state or country.
That being said, let’s look at how contract termination works in the Baltic states.
How to terminate a contract in Baltics
Currently, the Baltic states are used to refer to three countries: Estonia, Latvia, and Lithuania. Here’s the process for each country.
In Estonia
Employee contracts must be terminated according to the Employment Contracts Act. Here are the only legal grounds for termination.
- Termination after mutual agreement.
- Expiration of fixed-term contracts
- Death of an employee
- Employer’s death
- Cancellation
You should take note of the following notice period when you inform your employees of their contract termination:
- 15 calendar days for employees with less than 1 year of service
- 30 calendar days for employees with 5 years of service
- 60 calendar days for employees with 5 to 10 years of service
- 90 calendar days for employees with 10 or more years of service
In Latvia
Meanwhile In Latvia, besides a contract termination letter for employees, parents ( or guardians) or the State Labour Inspection may request a termination of an employment relationship with a worker under 18 years of age.
Here are some notable grounds for termination of a contract of employment:
- in response to a third party’s request
- violation of contract without justified cause
- employees are being laid off
- liquidation of an employer
In Lithuania
Lastly, termination of employment contract here is regulated by the Labour code. Generally, employers must provide written notice at least one month before terminating an employment relationship. However, for short-term employment relationships (less than 1 year), only two-week notice is required.
Here’s another important notice duration according to the code:
- The notice period is doubled for employees under five years from retirement.
- tripled for disabled employees., employees raising a child under 14, raising a disabled child under 18, pregnant women women, and those with less than two years left to reach the statutory age of old-age pension.
- Conversely, municipalities or institutions funded by the state budget can end an employment contract by giving notice 3 working days in advance.
What happens when there’s a massive layoff due to a bad economy
Let’s be realistic.
It may be necessary for companies to let go of large numbers of employees during an economic downturn.
In such a case, as the manager of human resources, you have to send out many contract termination letters at once. Yes, there are sample letters for contract termination on the internet that are publicly available. However, they’re not tailored for you.
You should instead use a tool that lets you quickly generate and send out customizable contract termination letters — like Avokaado modern CLM.
We share the 5 easy steps below:
How to use Avokaado to send out massive contract termination letters efficiently.
If you’re worried about how to lay off employees (under reasonable grounds), don’t worry. Avokaado CLM can streamline the process of sending out contract termination letters.
Here are the steps you need to follow:
Step 1: Draft using a termination letter template
You have three ways to proceed here:
- Upload your old MS Word contract termination letter to set it as your template.
- Download a sample of the contract termination letter from the web and upload it to Avokaado as your template.
- Use Avokaado’s free template of contract termination letter — the smarter choice because this is pre-lawyered, so you’re sure to comply with legal requirements.
Step 2: Fill out the template and customize it to your brand
After purchasing the free contract termination template, you must click it from your templates library and fill out the document’s pre-generated questionnaire. You can also customize this template according to your company styles once, and you’re ensured that all proceeding documents based on it have the style you specify.
Step 3: Leverage clause-based automation.
Does your termination letter include clause/s from the employment contract? With Avokaado clause-based library, you can effortlessly search and pull in the clause to reuse whenever needed. The result is company-wide consistency and compliance with the termination document you’ll produce.
Step 4: Add reviewers to approvers
After the first draft, you may need further input from co-managers. Add them as reviewers who can view or edit the document. You can also now add key stakeholders to approve your contract termination letter to ensure you send out only approved notices.
Step 5: Get the digital signatures of the signors
Once approved, you no longer have to switch apps to have them signed. You can use Avokaado’s integration to sign apps to get digital signatures. There are two signing options (SignNow and Dokobit), both of which are eIDAS compliant.
Step 6: Share out letters
Now, it’s time to send the contract termination letters. With Avokaado, you may choose not to print out documents. Simply click the “Manage” button in the Collaborators tab to begin sharing without them being involved in the document workflow.
Bonus:
You can manage all employment-related agreements in a central location — the Avokaado repository. This way, contract termination documents are stored securely and always up to date.
Efficient contract automation
Terminating an employee holds a certain set of risks. HR managers like you must be careful and ensure the fulfillment of all the relevant legal requirements.
Some reasons for contract termination include:
- Bad economy
- Breach of contractual obligations
- Poor fit
- Bad performance
- Mutual agreement
To help make the employment contract termination procedures simpler and more manageable, Avokaado has the perfect solution to send out contract termination letters — even en mass. You can schedule a demo so we can show you how or try Avokaado free for seven days!