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Go back to your contract. This is going to boil down to a contract issue.
Very basically - a contract requires a meeting of the minds. You are getting something and the other party is getting something and you both are really clear on the parameters of that agreement.
A contract is a written explaination of that agreement and therefore, the contract should state what hours you had originally contracted for care. Some provider's have the specific agreement for each family in their contracts and others have core business hours and client's are welcome to come between opening time and closing time.
If she has reduced her hours, then that is effectively a change in the contracted agreement. You have the right to either withdraw from the time the change occurs, without notice, because SHE changed the contract and you aren't agreeing to that, it wasn't what you contracted for. Doing that means you stayed while the original contract was valid and when the change was applied, your old contract became null and void and therefore there's no contract to hold you to either, with regards to notice.
Or, you can do exactly what you have, and give notice based on the revision not meeting your needs. This is the kindest way forward, although you wouldn't have actually had to give notice because she's the one changing the agreement. This is the best way forward, because although you wouldn't have had to give notice in the example above, you are honoring the agreement and there's no weakness in your actions - you followed the contract to the letter, even if she hasn't.
In terms of your deposit, again, go back to the contract. Does it explicitly say that the deposit is applied to the final weeks of care? Does it say non-refundable? Does it say the deposit was to hold a space? It's really important to know exactly what the contract said.
If the deposit was to hold a space, then she's done that - held a space so your child started in her care on the first day you were expecting her to. The default legal position is that deposits are non-refundable, so go and check your papers and see exactly what the deposit was for and if there's any mention of being credited it and what the circumstances of that would be.
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