Termination without Cause: Notice, Fees & Best Practice

Termination Without Cause allows one or both parties to terminate the agreement without stating a specific reason or cause, typically upon providing advance written notice and subject to certain conditions or consequences.

Inserted in the Term & Termination article - sometimes as a dedicated “for convenience” paragraph—the clause:

• Gives a unilateral or mutual right to walk away “at will.”
• Specifies a notice period (e.g., 30–90 days).
• Details payments due on exit (work performed, non-cancellable costs, profit).
• Triggers exit-assistance obligations (handover, data export, transition services).
• May be suspended during an initial lock-in term to protect vendor ROI.

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Key elements of a well-drafted 'Termination without cause' clause:

• ‍Termination Rights
  Explain clearly whether both parties can invoke termination without cause or only one side has that right. If the right is unilateral, consider including a rationale or limitation to protect the other party.‍
  • Example: A software-as-a-service (SaaS) provider might reserve the right to terminate early if the customer repeatedly fails to comply with usage restrictions. Conversely, the customer may insist on a mutual right if business needs or budget constraints suddenly change.‍

• Notice Requirements
  Specify the exact form of notice (e.g., written notice delivered by email or registered mail) and the length of the notice period. When possible, align notice requirements with practical business timelines.‍
  • Example: A contract might state that either party can terminate without cause by providing 30 days’ written notice. This ensures the receiving party has sufficient time to adjust operational arrangements or find alternative service providers.‍

• Termination Effective Date
  Clarify when the termination will actually take effect. Include provisions for any final work or wrap-up period.‍
  • Example: If the contract involves ongoing creative work (like ad campaigns), a clause can state that termination is effective 15 days after the notice date, allowing both parties to finalize design drafts or transfer project files.

• Termination Consequences
  Outline the financial and operational implications of early termination. Cover any final payments for services already performed, termination fees, or return of equipment and proprietary information.‍
  • Example: A consulting contract might provide that, upon termination without cause, the hiring party must pay for any completed milestones plus a modest cancellation fee to compensate the consultant for lost work opportunities.

• Survival of Provisions
  Identify which obligations will continue despite contract termination. This is particularly important for clauses dealing with confidentiality, liability, or dispute resolution.‍
  • Example: Even after a marketing partnership ends, both parties may remain bound by confidentiality and non-disclosure provisions for two years post-termination to protect trade secrets and customer data.

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Contract types where a no-cause exit is common:

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Common structures and market practices:

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Key drafting notes for Termination without cause:

• Fairness and Reciprocity: Evaluating whether the termination rights are fairly balanced between the parties or whether one party holds a disproportionate advantage.
• Notice Periods: Ensuring that the notice periods are reasonable and provide sufficient time for an orderly wind-down or transition of activities.
• Termination Compensation: Carefully defining the compensation or fees payable upon termination, considering the work performed, costs incurred, and potential lost profits or opportunities.
• Transition and Wind-Down: Addressing any practical considerations or procedures for transitioning or winding down activities upon termination, such as knowledge transfer, handover of deliverables, or employee retention.
• Interaction with Other Clauses: Analyzing the interplay between the Termination without cause clause and other contractual provisions, such as limitation of liability, indemnification, or intellectual property ownership clauses, to ensure consistency and mitigate potential conflicts.

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"Termination without cause" is also sometimes referred to as "Termination for convenience (T4C)" or "Termination at will" clause

A famous example of a legal dispute arising from an incomplete or ambiguous Termination Without Cause clause is the case of Sheshunoff v. Sheshunoff (1988). In this case, the Texas Supreme Court ruled that a Termination Without Cause clause that failed to specify the compensation or consequences of termination was unenforceable due to lack of consideration and mutuality of obligation. The court held that "a contract which permits one party to terminate at any time without cause and without liability for damages is illusory and unenforceable." (Citation: Sheshunoff v. Sheshunoff, 172 S.W.2d 686 (Tex. 1988)).

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