What happens to a user's Microsoft 365 license when an employee leaves the company?

When a user account is disabled or removed, you can unassign their license, which frees it up for reassignment to a new user without needing to purchase an additional seat (as long as you're within your current licensed seat count). Their mailbox and data can typically be retained for a period (e.g. converted to a shared mailbox or placed on hold) depending on your offboarding process, separate from the license assignment itself.