What Is Voluntary Termination?

Voluntary termination may refer to a variety of actions, but most commonly, it refers to an employee's decision to leave a job on their own accord. It may also refer to the voluntary cancellation of personal financial contracts, such as car leases or cell phone contracts, or the voluntary cancellation of institutional level contracts such as credit default swaps and interest rate swaps.

Understanding Voluntary Termination

An employee may choose to leave a job for a wide variety of reasons. For example, a change in personal circumstances such as family demands, a choice to go back to school, dissatisfaction with working conditions such as a hostile supervisor, lack of recognition of work performance, and lack of autonomy, challenge, or work relationships (among others).

An especially common reason for voluntary termination is leaving for a new and better job, typically one that offers higher remuneration or improved career prospects. This is more likely to be cited as a reason for leaving a job during periods of strong economic growth and labor market demand than during recessionary times.

During recessionary times, or even during times when a particular firm is under duress, companies going through downsizing may ask some employees to voluntarily resign in order to reduce the number of layoffs the firm must carry out. In these circumstances, the company may offer the employee that is leaving voluntarily an improved exit package, including extra weeks of severance pay, longer coverage of health insurance and any other benefits.

Conventional wisdom suggests that workers do not leave jobs but rather leave supervisors over conflicts in management style, lack of respect, or poor communication over goals, objectives, and practices.

How Voluntary Termination Works

Voluntary termination by an employee will generally start with either a verbal or written notification of resignation to their supervisor. In some circumstances, there may also be the perception of job abandonment when a worker fails to show up for work for three consecutive days without notifying a supervisor.

Employees who choose to leave a job are generally expected to provide at least two weeks of notice before their final day at work. This is considered to be a professional way to handle resignation: it allows the company time to begin the process of finding a new employee and allows the worker time to prepare for the transition.

When submitting their resignation notice an employee can expect their supervisor to immediately forward it to human resources along with their intended end date and reason for leaving. Once human resources are involved, the employee can expect to be asked to return company property, to finalize and submit final expense reports, have their post-termination benefits summarized for them, and be asked to schedule an exit interview. Supervisors may be asked to complete a Supervisory Termination Summary, a form that is submitted to human resources.

Key Takeaways

  • Voluntary termination occurs when an employee makes the decision to leave a job or end a contract early.
  • Voluntary termination is different from being fired, laid off, or downsized, as the decision is made by the employee, not the employer.
  • Some firms downsizing ask for voluntary resignations in exchange for a better exit package, such as a bigger payout, health insurance, or other benefits.

Special Considerations

Voluntary cancellation of financial contracts may or may not incur penalties. In case a penalty will be incurred, the party who wishes to terminate the contract may be able to rationalize the termination decision if the net benefit from terminating the contract is substantially larger than the penalty.