Contract Termination: The Breakup of the Business World

It is said that breaking up is hard to do. In the business world, breaking up a relationship often requires a contract termination. While contracts serve a necessary legal purpose, they can cause confusion if the time comes to end a professional working relationship between a business and a vendor, another business, clients, or contracted employees.

Contract termination and the way it may occur is determined primarily by the contract itself. Because of this, contracts should be reviewed by an experienced contract attorney before you execute the document. It should also be reviewed before the contract is terminated to ensure that the termination follows the language of the contract. If you need to have a contract reviewed or a contract reviewed as to how to best terminate it, call Larsen Law now at 303-520-6030 to schedule your consultation.

The Contract Termination Clause

Contracts should include a contract termination clause. This clause explains how, why, and when a contract may be terminated by either or both parties. Contract termination clauses generally address the reasons for which one or both parties may terminate the contract and whether there is a certain amount of time, known as notice, must be given by the party wishing to cancel the contract. Another piece of information that may be found in this clause is whether there is a certain date on which the contract terminates on its own.

With Cause and Without Cause

Contract termination may be done with cause or without cause, depending on what the parties agreed to at time of contract. Generally, the contract termination clause clarifies all of the options for termination. If a contract may be terminated only with cause, the causes for doing so are generally listed. With cause may be found in any type of contract, and each of the items that trigger such an event should be detailed with some specificity.

Related: Making the Most of Your Healthcare Contract: How a Healthcare Attorney Can Help Doctors & Nurses

When a contract may be terminated without cause, either party may decide to end the contractual relationship, within the parameters for doing so that are stated in the contract. Items concerning any contract termination are date restrictions, notice provisions, any wrap-up items that must be addressed, return of IP to its legal owner, Certificates of Destruction may be required, final billing matters, and a host of other considerations that should be addressed at time of contract to help ensure a smooth transition at end of contract.

What Happens When a Contract Is Terminated?

The action that may take place after a contract is terminated depends on the contract termination itself. For example, if the contract was terminated in a way that was not allowed for in the terms of the contract, this may be a breach of contract. The party who ended the contract may then be required to fulfill certain obligations as a result of the breach of contract. Those obligations may very well be listed in the contract itself. As a simple example, consider a contract for cell phone service. If a party signs a two-year cell phone agreement, they are expected to pay for the service for two years as stated in the contract. If they do not, they may be required to pay an early termination fee or face some other sort of repercussion.

If the contract is terminated according to the terms contained within the contract itself, the parties may very separate the professional relationship on good terms. Obviously, the relationship between the parties would depend on several factors that may have also caused the contract to come to an end. For example, if one party terminates the contract because the parties fulfilled all of their obligations, the parting relationship would likely be positive. However, if one party did something illegal or acted in a way that otherwise gave a cause as listed in the contract, the relationship may not end on a positive note. 

What If Both Parties Want to Terminate the Contract?

There are many reasons both parties may wish to terminate the contract. Reasons for this run the entire spectrum between all the conditions of the agreement have been satisfied or none of the conditions of have been satisfied and the parties are at such an impasse, confidence that the original arrangement can be brought to fruition is lost.  A successful contract termination can hinge on any of the past interactions between the parties: the project, the deliverables, incompatible personnel, unrelenting invoicing problems, are just a few of the many reasons parties choose to leave.

Terminating a Contract

Contract termination is a serious matter that should be thought about carefully before it takes place. The parties should take the necessary time to review the original contract to determine if there is a valid reason supporting termination. In many circumstances, the parties may also wish to review the contract to ensure they’ve fulfilled their obligations as a party to the contract to hopefully avoid a breach. A contracts attorney can help parties determine if there is a valid reason to end the contractual relationship and what, if any, issues the party wishing to cancel may face in doing so.

If the contractual obligations have been fulfilled, the parties may wish to enter into a termination of contract agreement. This document explains that one or both parties wish to terminate the contract, why the termination will take place, and when the termination will occur. If the termination agreement is accepted by the parties, it is executed. Then, both parties keep a copy of the executed termination agreement with their original contract.

Terminating a Contract Isn’t Always Straight Forward and Simple

Just like when romantic relationships break up, terminating a contract isn’t always straight forward or simple. Contracts that are complicated, have vague language, or have other issues could make a clean break much more difficult. As an experienced contracts attorney, Susan Larsen provides contract review and guidance related to both simple and complicated contract termination scenarios. To learn more or to get assistance with your specific situation, call Larsen Law at 303-520-6030 to schedule your free 30 minute consultation.