Termination for Cause Clause: Breach Triggers & Cure Periods

TLDR:

A Termination-With-Cause Clause empowers a party to end the contract early when the counter-party commits a material breach, becomes insolvent, or triggers another listed “cause” event - often after a notice-and-cure window, but sometimes immediately.

Well drafted 'Termination with Cause' clause contains:

1. Definition of Cause: Clearly specifying the events or circumstances that constitute grounds for termination, such as non-payment, breach of representations or warranties, violation of laws or regulations, or failure to perform material obligations.
2. Notice and Cure Period: Establishing procedures for providing written notice of the alleged breach or default, and allowing a reasonable opportunity for the defaulting party to cure or remedy the situation before termination becomes effective.
3. Effective Date of Termination: Defining when the termination becomes effective, considering any cure periods, notice requirements, or wind-down arrangements.
4. Termination Consequences: Outlining the rights, obligations, and potential liabilities of each party upon termination, such as payment of outstanding fees, return of proprietary materials, or post-termination obligations.
5. Dispute Resolution: Including mechanisms for resolving disputes related to the alleged breach or the termination itself, such as negotiation, mediation, or arbitration.

Termination With Cause clauses are crucial in various types of contracts involving significant obligations, risks, or potential losses, where a material breach or default by one party may severely impact the other party's interests. Examples of the language:

1. Software Licensing Agreement: "If either party materially breaches any term of this Agreement and fails to cure such breach within thirty (30) days after receipt of written notice, the non-breaching party may terminate this Agreement immediately upon further written notice."
2. Distribution Agreement: "In the event of a material breach of this Agreement by either party, the non-breaching party shall provide written notice specifying the nature of the breach. If the breaching party fails to cure the material breach within sixty (60) days after receipt of such notice, the non-breaching party may terminate this Agreement effective immediately."
3. Employment Agreement: "The Company may terminate the Employee's employment for Cause, which shall include, but not be limited to, gross negligence, willful misconduct, material breach of this Agreement, or violation of Company policies. In the event of termination for Cause, the Employee shall not be entitled to any severance or additional compensation."

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Contract types where cause based termination is critical:

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Common structures and market practices:

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Drafter's checklist:

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Bottomline:

A Termination-With-Cause Clause is the contract’s emergency brake - pull it only when the counter-party truly derails, and make sure the mechanism (notice, cure, triggers) is engineered with legal precision.