When offering options to an employee, they will have received a copy of the 'Plan Rules', which will contain the rules specific to your company.
The Plan Rules will contain general ‘buy-back’ provisions, which allow the company to buy shares back from employees in certain circumstances.
One of those circumstances is when the employee leaves the company. The Plan Rules will set out the price which the Company must pay to buy-back shares when the employee leaves. The price will be based on the circumstances in which the employee leaves - ie, whether they are a good leaver, or a bad leaver.
It will define what constitutes a good leaver and bad leaver, and the process to be followed, in order to prevent any disputes at a later stage.
If the employee has options that you would like to cancel, this is usually done using the 'Lapse' function in Cake. This will return any lapsed options back into the unallocated pool of options. See here for how to lapse options.
If an employee has exercised their options and are now a shareholder, you can process a share buy back through Cake. See here for how to process a buy back.