How to Terminate an Employee Contract Due to Closing of Business

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The sad truth is businesses close. Closing your business can be an emotionally traumatic experience on top of a huge logistic hassle. But the hardest part is telling your employees. In many cases, you've established a long-term relationship with your workers. To make matters worse, many employees will be under contract with you, requiring extra paperwork on your part to make sure you're not subject to lawsuit.

  • Consult with your lawyer before taking any other steps. Local employment law may or may not require specific actions when laying off your workforce.

  • Review the employee's contract carefully. If the contract has no set end date, you should be free to terminate the contract at will.

  • Draft a termination agreement if the employee contract is for a set period of time. This agreement offers your employee some kind of severance bonus for waiving their right to sue you for ending the contract early.

  • Sit down with the employee, explain the situation and give them the offer. It may be necessary to negotiate at this stage, but most employees will take the offer given.

  • Have the employee sign the termination agreement. Make three copies: one for your files, one for your lawyer and one for the employee. It's usually best to print three copies and have everybody sign each.

Tips & Warnings

  • Employment law is complex and carries strong penalties for making mistakes. Review every step of your plan with your lawyer, or at least your state's employment department.

References

  • Interview with Mike Reding, Business Consultant, Portland, OR
  • Interview with Bart Brick, Business Consultant, Hillsboro, OR
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