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How to Terminate an Employment Contract

Last revision:
Last revision: September 4, 2019
Last revision:
Category: Human Resources and Employment Law

Every good thing, they say, must come to an end. An employer may terminate an employment contract for several reasons, such as: redundancy, merger or acquisition, misconduct of an employee, etc. It is very important for employers to understand the proper legal procedure for bringing an employment relationship to an end as failure to do so may lead to industrial actions, trade union disputes or wrongful termination suits against the employer. The Labour Act, 2004 regulates employment relationships between employers and employees as it defines the rights, duties and obligations of the employers and employees and provides a clear procedure on how an employment contract may be terminated.

Who is an Employee?

An employee is a person employed by another to do specific work in exchange for remuneration or salary. Under the Labour Act, the categories of workers that are entitled to protection under the employment law are:

  • Workers in private employments;
  • Workers in public/statutory corporations; and
  • Workers in civil service.

The Difference Between a Dismissal and Termination under the Labour Act

Under the Labour Act, dismissal simply refers to the termination of an employee's employment for reasons connected to the employee's misconduct at work. Grounds for dismissal includes sexual harassment, gross misconduct, criminal act etc. However, termination occurs when an employer brings an employment relationship to an end owing to no fault of the employee.

How can an Employer Terminate an Employment Contract?

1. Dismissal of an Employee

According to the Labour Act, an employee who has committed a gross misconduct can be dismissed without any notice or salary in lieu of notice. However, before the employee is dismissed, the employee should be given the opportunity to defend himself and where a tribunal is constituted to hear the case, it be must made up of independent parties.

Some employers may depending on the gravity of the offence, issue a warning letter to the employee or utilize other punitive sanctions such as suspension, instead of outright dismissal.

2. Termination of Employment

If the employer intends to terminate the employment for any reasons owing to no fault of the employee, the employer is required to either issue a notice of termination or offer salary in lieu of notice to the employee. According to the Labour Act, the minimum notice period according is as follows:

  • one day, if the employment has continued for a period of three months or less;
  • one week, if the employment has continued for more than three months but less than two years;
  • two weeks, if the employment has continued for a period of two years but less than five years;
  • one month, if the employment has continued for five years or more.

However, the parties may agree to longer notice periods in their Employment Contract.

The procedure of termination also depends on the industry the employer belongs to. For example, to terminate an employee working for an employer in an oil and gas sector, the employer is required to obtain the consent of the Department of Petroleum Resources and notify the Nigerian Content Development and Monitoring Board of any intended termination.

The general rule is that an employer can terminate an employment contract for any reason with or without stating any reasons for doing so provided that the appropriate notices are issued to the employee. However, when the employee's contract is terminated due to redundancy, the employer is required to adopt the principle of last in first out (i.e the last employee to be employed will be terminated first), inform the trade union of the employee or the employee's representative of the reasons for and the extent of the redundancy and make redundancy payments to the employees whose employments have been terminated.

Redundancy is the situation where employers reduce their work force because their services or work are no longer required or the employer's business has closed down. This may occur in mergers and acquisitions where the acquiring company may terminate the contracts of some employees of the company that is being acquired.

How can an Employee Terminate their Employment Contract?

An employee can resign from an employment for any reason with or without stating their reasons for the resignation by simply providing a proper notice in writing to the employer. The length of notice depends on what has been agreed by the parties in the employment contract. For some organizations, the employee may resign by issuing a resignation letter or forfeiting their one month salary.

About the Author

Vivian Umelue is an attorney and legal templates programmer at Wonder.Legal and is based in Nigeria.

Templates and examples to download in Word and PDF formats

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