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.