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Labor and Employment Law

Why Did The Lawyer Put This In My Employment Contract?: The Termination Clause

In yet another attempt to explain the legalese that lurks in your employment contracts, today I'll talk about some of the language you might see in the contract you sign when you're first hired: the termination clause. It's something you don't really want to think about when you're all excited about a new job offer, but it's almost always in there.

You're most likely to see something like this, if not in a contract or offer letter, then in your handbook:

You agree and understand that your employment is at-will.

Your eyes probably glazed over and you didn't think about this. But the next time you are handed a contract to sign that says this, I suggest you think about it seriously. What this means is that you agree you can be terminated for any reason or no reason at all. If your new boss is in a bad mood three days after you start, even if you gave up a steady job of 5 or 10 years to take this new offer, you're out of there with no severance at all. Especially if you're moving, leaving another job, or are a hot commodity (you have an expertise, a degree, experience or something else that makes you able to pick and choose), I suggest you try to negotiate a better clause than this one.

A slightly more acceptable clause:

You agree that the Company may terminate your employment by giving 90 days' notice. If the termination is for cause, the Company may terminate your employment without notice.

 At least in this one, the company has to give you some notice, or pay out the notice period as severance. The clause might have more or less notice, depending on what you negotiated, but the notice is important. It's also important to define what "cause" for termination will be. If you leave it up to the company to determine whether or not your performance is up to par with no way to measure, then you might as well be at-will.

What's concerning about a clause like this one is sometimes people spend lots of time negotiating the length of the agreement. Say you negotiate a contract with a one year term, with automatic renewals at the end. You think you've assured you have something steady for at least a year. But this clause completely negates that one year. Whatever notice the company puts in here that they have to give, that's likely how much they'll have to pay out.

Even better would be:

This agreement may only be terminated for cause. In the event of termination for cause, the company shall give notice of the alleged cause and give you 30 days to cure the problem before termination.

You still need to worry about defining what constitutes cause, but with this clause you have a chance to fix things if the company thinks you're messing up. If they fire you for no cause, they have to pay out the rest of the contract. That's great if you have lots of time left on it, but if you don't, you might have been better off with the provision above. Still, if I have my druthers, I'll pick this one over that. At least you'll have time to prove yourself, so your move won't be a complete hardship.

If you have lots of leverage, or if the employer wants you bad enough, you might get lucky and get a clause like this:

In the event of termination, the company will pay you 6 months of severance.

Notice it says nothing about cause or no cause. With this one, it doesn't matter how much you mess up. As long as you haven't breached the contract in some way, the employer has to pay out your severance no matter the reason for termination. This kind of clause is especially good if you have a noncompete. If you have to stay out of the industry 6 months, they should pay you 6 months so you can survive. If they want you to stay out longer, you should try to negotiate a longer payout.

Even though you don't want to think about getting fired or laid off, you have to if you want to survive in this economy. If you have any leverage at all to negotiate a better contract, the termination clause is one of the most important clauses to get right.

See more employment law posts on Donna Ballman's blog, Screw You Guys, I'm Going Home

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