Termination of a contract is commonly seen in employment contracts or a swap transaction, though other uses exist in different circumstances. If you think you need to terminate an agreement or have been subject to wrongful termination, studying up on what it means and how it works is essential - particularly in the cases of involuntary termination.

What is a termination?

Termination is when one or both parties follow a termination clause within a contract that allows them to end the agreement. That clause will outline and define the reasons why the termination can occur. Termination can sometimes simply mean that both parties mutually agree to nullify the contract. However, it is often used when one party has not fulfilled their side of the agreement, there has been a contract breach, or one of the parties has acted fraudulently. Additionally, there are often termination cases when the contract will not be possible to complete due to unforeseen circumstances. 

How does a termination work?

A termination works in different ways, according to what the termination clause stipulates in a contract. The most common type of termination seen will be an employee resigning from their position. However, terminations of employment contracts also occur when an employer dismisses an employee. They may do so on the grounds of a breach in an employee’s contract on their behalf. Or, the employer could dismiss the employee for not fulfilling their part of their employment agreement. There may also be a special termination clause in an employment contract outlining the instances that determine specific circumstances that a contract can be terminated. 

However, in cases where there is a financial transaction involved between parties, terminations work slightly differently. While the termination clause in these types of agreements is ideologically the same, if a contract cannot be fulfilled or there is a breach, the contract can still be nullified. It is then how two parties start proceedings to terminate the contract is that varies. They will do so according to the conditions set in the initial agreement.

Advantages of a termination 

One of the main advantages of a termination of a contract would be ending an agreement that is no longer beneficial to one or both parties. It means that a company or person can walk away from a situation that no longer meets the standards expected in the contract. 

Additionally, it also provides an opportunity for two parties to set out what is expected of them from the beginning. By saying what will legally terminate an agreement and what actions are required to do so, both sides know from the outset what could end a working relationship. It also stops parties from being tied to each other in a situation that is mutually disadvantageous to each other. Instead, they can legally nullify the contract, leaving them to move on to other employment or other business. 

Contractbook and termination

Contractbook is a fantastic resource if you find yourself on the end of a wrongful termination or have been given a termination letter you disagree with from your employer. Our library of templates means that a letter of termination can also be quickly drawn up when you want to dismiss an employee on the grounds set out in their contract. Additionally, those looking to create a lease termination letter will find doing so quick and easy using our templates, particularly if one of our commercial lease agreements has been used initially. It gives clear direction on what a landlord must do to terminate the contract.

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