Termination for Cause Belongs Only in Employment Agreements

The concept of termination for cause occurs in employment agreements. That’s where it belongs—don’t put it in other kinds of contracts.

Here’s an example of a definition of “Cause” from an employment agreement:


And here, from a manufacturing services agreement, is a section referring to termination for cause:

In employment agreements, the concept of termination for cause takes the perspective of the employer: an employer may terminate an employee for cause if the employee is crap at their job, as determined in any of various ways.

By contrast, a broader range of circumstances could fall under the concept of termination for cause if you apply it to other kinds of contracts. Inaccurate statements of fact. Failure to pay. Other breached obligations. Occurrence of an event of bankruptcy. Failure to perform because of a force majeure event continues beyond a stated period. Occurrence of some stated external event. And so on. Because of that variety, the consequences of termination can vary depending on the grounds for termination. Covering everything with termination-for-cause language wouldn’t work.

Furthermore, in employment agreements the label “termination for cause” (from the perspective of the employer) stands in contrast to “resignation for good reason” (from the perspective of the employee). In other kinds of contracts it wouldnt’ make sense to apply the for-cause concept to just one party. So in those contracts, “for cause” doesn’t serve the same labeling function.

That’s why cause is expressed as a defined term in the first extract but isn’t in the second extract. In fact, in the second extract the “for cause” concept is so inconsequential you could simply delete it (from the highlighed portion) without affecting anything.

Why am I looking into this? Because in my capacity as LegalSifter‘s chief content officer, I’m in the process of deciding what termination concepts we should look for. I want to make sure that when we look for termination for cause, what we look for makes sense.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

5 thoughts on “Termination for Cause Belongs Only in Employment Agreements”

  1. Just so I follow your point: You’re not against the notion that in certain circumstances a party may terminate the contract for material breach AND can also choose to accelerate the right to exercise (i.e., skip the notice and cure period). Rather, you just don’t like labeling that concept of accelerating the material breach termination right as being “for cause.” Correct?

    If so, I’m fully behind that. The label adds nothing (or may even confuse things by implying some moral outrage into an analysis that should be purely a question of objective facts).

    • The rights on termination are whatever they are. Applying the “for cause” label to various alternatives is unnecessary and potentially confusing. So yes, I think you follow :-)

  2. I’ve encountered some contracts that use the ‘termination for cause’ language as a way of distinguishing from a ‘termination for convenience’ option in the contract. The ‘termination for cause’ clauses allow one party to terminate based on the other party’s breach (and, sometimes, for other reasons that aren’t strictly a breach). The termination for convenience clauses allow one party to terminate even if the other party hasn’t breached or otherwise done anything wrong.

    The distinction typically drives some other contract language — almost always, the length of the requisite notice period and the direct consequences of the termination to the non-terminating party. Sometimes there are some other points for which it matters which kind of termination option is being exercised.

    Would the presence of a termination for convenience clause in the contract perhaps justify the use in that contract of ‘termination for cause’? Or would it just be better to refer to “termination under section X.X” as opposed to “termination under section X.Y” and avoid use of both ’cause’ and ‘convenience’?

  3. In the context of partnership and LLC agreements, there is often a concept of “removal for cause” and “removal without cause” that require different prerequisites and voting thresholds. In context, it helps clarify rather than confuse.


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