During a CLE session at the recent Associate of Corporate Counsel annual meeting, one of the panel members used the phrase termination for convenience. It’s a phrase I don’t encounter too often, so I thought I’d better look into it.
The Implications of “Termination for Convenience”
A quick review of contracts on the SEC’s EDGAR system shows that the phrase termination for convenience occurs in a variety of different kinds of agreements providing for ongoing peformance. Here’s an example from a services agreement:
6.2 . T-Mobile may terminate this Agreement, the Services performed at any Site or any one or more Statements of Work hereunder for convenience by giving at least ninety (90) days’ prior written notice to the Provider. However, unless otherwise provided under this Agreement, T-Mobile will not exercise its termination for convenience rights for the Agreement during the first year following the Effective Date.
Termination for convenience would seem to be a euphemism for termination for any reason at all. I suspect that the phrase has come into use simply because it sounds less threatening than termination for any reason and rolls off the tongue more readily.
You can see this in the way some drafters use it as a catchy section heading but lay out the harsh reality in the body of the section:
SECTION 7.01. . Either party may terminate this Agreement, for any reason or for no reason, upon not less than 45 days prior written notice to the other party delivered in accordance with Section 11.01 stating such party’s intention to terminate this Agreement.
I’m against anything that muddies the meaning of contract language. Acme might want to terminate its agreement with Widgetco for any number of reasons. Maybe it found it could get better terms elsewhere. Maybe it decided to stop selling widgets. Maybe it became embroiled in litigation with Widgetco. “Convenience” seems a pallid word to capture all those possible reasons.
And more to the point, an imaginative (or desperate) litigator might argue that Acme could terminate for convenience only if its agreement with Widgetco imposed some sort of burden, and that the prospect of a better deal elsewhere wasn’t a sufficient reason.
So I don’t think I’ll be using termination for convenience. For what it’s worth, my highly unscientific survey of contracts filed on EDGAR in the past month suggests that contracts containing termination [or terminate] for any reason outnumber by twenty to one those that contain termination [or terminate] for convenience.
If termination for convenience isn’t your cup of tea, what should you use instead? Here’s the full range of language you could use:
Acme may terminate this agreement [at any time] [for any reason] [or for no reason] by giving the Vendor at least 30 days’ prior notice.
What about the first two bracketed elements? If you say that Acme may terminate at any time, that carries with it the implication that Acme may terminate for any reason. If you say that Acme may terminate for any reason, that carries with it the implication that Acme may terminate at any time. Is the implication strong enough that you can use one of these two elements and not the other? What about dispensing with both of them?
My vote goes to keeping for any reason, as that’s the most important concept. I think the associated implication that Acme may terminate whenever it wants is sufficiently strong to allow one to dispense with at any time. And I wouldn’t want to dispense with both elements, even though I could happily make the argument that if a provision doesn’t impose any limitations on reasons for termination, I wouldn’t need any reason. Three extra words is a small price to pay for being categorical.
But if you’re drafting an agreement that provides for termination for cause (a topic worth a post unto itself), instead of termination for any reason you could use termination without cause, in the interest of symmetry.
The one element I wouldn’t have any qualms about eliminating is or for no reason. Businesses act rationally or irrationally, prudently or imprudently, competently or incompetently. What they don’t do is act entirely at random.)
But what about a section heading? “Termination for Any Reason” does seem a little in-your-face. Here’s my suggestion—cue trumpet fanfare—”Unrestricted Termination.”
So to sum up, here’s what I’d use:
. Acme may terminate this agreement for any reason by giving the Vendor at least 30 days’ prior notice.
Hey, what about the word prior? For more on that, see this June 2006 post. And while I’m at it, don’t forget at least.
All this represents my first take on this subject, so I’d be interested to hear what you think.
25 thoughts on ““Termination for Convenience””
I’m not sure I agree with you. IMO, “convenience” captures the “any reason” concept well.
More importantly, the real goal is to enable a termination that isn’t subject to an implied obligation of good faith and fair dealing. I’ve never quite figured out how to enable a termination right that wouldn’t be challengable as a violation of the good faith obligation, but usually that’s what a party wants when they set up a termination for convenience. Saying that the agreement can be terminated “for any reason,” without saying “and for no reason,” practically begs a court to interpose the good faith obligation. In contrast, I think a judge has to work harder to interpret “convenience” as being subject to a good faith obligation. Eric.
Normally, I think you’re spot-on with your evaluation of language. But “Termination for Convenience” IS the convenient way to indicate that I can terminate any agreement for any (or with no) reason at all.
This is as opposed to “Termination for Breach” which many consider to be the only acceptable reason for terminating an agreement. I’ve seen T4C used just about everywhere in the vendor/buyer world – calling it “Unrestricted Termination” would simply confuse the readers and negotiators.
Sorry to disagree. :)
Eric: Let’s consider the semantics of this.
Whatever wording you use, a contract will be subject to an implied obligation of good faith and fair dealing if that’s the way courts in the jurisdiction in question operate.
And good faith is something that is determined independently of the language of your contract. If a court thinks that Acme has acted in bad faith in terminating a contract, they’re going to ignore “termination for convenience” language just as much as they’re going to ignore “termination for any reason” language.
Furthermore, you seem to implicitly accept that “termination for convenience” has a narrower meaning than “termination for any reason.” There’s no reason to assume that the additional meaning afforded by “termination for any reason” is coterminous with bad faith. So as I suggest, the narrower meaning of “termination for convenience” could cause mischief.
And I cannot conceive of any manner in which “and for no reason” could change the meaning of “termination for any reason.”
Jeff: The only question that concerns me is whether termination for convenience successfully conveys the same meaning as termination for any reason. I don’t think it does, because termination for convenience comes from the same deep well of business euphemism as gave us “downsizing” instead of “layoffs.”
If I gave the benefit of the doubt to popular usages, I’d have to throw out half of what I write. But I’d be willing to tolerate termination for convenience as a section heading, if only to make life easier for those who are used to the term.
I agree that the T4C phrase is only the section header and that the language within the section is generally something along the lines of “may terminate at any time and for any reason.” I also agree that T4C might be a euphemistic way of really explaining our true intent, which is: “Termination because I feel like no longer doing business with you.”
Now that I’m thinking about this section, though, I AM concerned about “… for any reason…” as that implies that I actually have to GIVE a reason. (This is my current template language.) I am now having to consider changing that to be “for no reason.” :)
Ken, “termination for convenience” is a term of art from the world of government contracts. It refers to a mandatory clause that must be in all government contracs. It gives the government (but not the government’s contractual counter-party) the right to terminate in a non-default situation. This is, as a policy matter, something the government feels it requires to protect taxpayer money in situations where a contract no longer looks so good. The government does not need to justify its action in the event this right is exercised. But so strong is the policy that, even in federal government contracts where the clause is NOT included, it is implied (see the famous Christain Brothers case) – it is not within the authority of contracting officers to agree to exclude it during negotiations. And there are both regulations and a body of case law on what the terminated party may collect from the government by virtue of the exercising of the T4C right.
The clause to which you refer is one in a commercial contract that I’ll wager was based on a similar contract that was done with the government. But please don’t be so quick to re-write this term of art – we can argue about the merits of such a clause in a purely commercial contract between private parties, where the government’s policy rationale doesn’t apply.
Scott: Thank you for that valuable bit of information.
I’m happy to accept that termination for convenience is jargon that’s firmly entrenched in the world of government contracts. But I’ll staunchly resist importing that jargon into other realms.
I don’t think Scott said it was jargon. He said it was a term of art in government contracting.
“Termination for convenience” is a phrase that is also well understood in commercial contracts. I cannot imagine wasting breath or electrons on eliminating this phrase. You are not saving many words, and you risk unplugging from years and years of case law around T4C.
There are indeed other ways to word to arrive at the same result, but including “for any reason” creates the implication that you have to state a reason. You would be better off saying “Acme may terminate this agreement (better, terminate the Term of this Agreement as the entire agreement is not canned as to performance prior, amounts still due, as to any disputes, etc) by giving the at least 30 days’ prior written notice.
Why would you say “prior notice” v. “prior written notice”?
Kurt: One man’s jargon can be another man’s term of art, as it’s not always clear where the boundary is. But more to the point, I’ve already accepted Scott’s point that termination for convenience has a long track record in government contracts.
My goal isn’t to save words but rather to express contract concepts without resorting to businessspeak.
I “risk unplugging from years and years of case law around T4C”? You’re invoking the bogeyman of “tested contract language.” I don’t buy it.
If a terminating party is unable to state a reason why they terminated, then no contract language can help them.
It’s counterproductive to say “terminate the term of the agreement.” Even after a contract is terminated the parties can invoke the dispute resolution provisions, the governing-law provision, and so on. See this blog post.
I say “prior notice” because I’m assuming that the contract contains a notices provision, and a sensible notices provision would say that notices must be in writing. If an agreement doesn’t contain a notices provision, then by all means add “written.”
Aren’t we really just discussing what a section should be captioned? In my experience, no matter how you draft the operative language, you refer to that section, or right, as “termination for convenience” when discussing the contract.
In practice, I avoid the situation entirely by having sections captioned “Termination by X,” “Termination by Y” and “Termination by Either Party.” Of course, that frequently leads to a discussion of why my client X has a right to terminate for convenience and the other party doesn’t, but that’s a story for another day.
For what it’s worth, I usually draft it as “This Agreement shall terminate upon the first to occur of (x)… (y)… and (z) notice from [my client] of termination.” I’ll re-think whether I should be silent on the reasons, but I like the austerity of that clause as it’s written.
If we’re going to discuss distinctions between captions and common parlance, let’s talk about the frustration of explaining to ignorant counsel that a “merger clause” does not have anything to do with a merger of two companies.
In the US government contracting world, Termination for convenience refers back to FAR 52.249-1 through 52.249-3. The provision works much as you describe in your post, but the phrase “termination for convenience” is a term of art in this arena. I agree that there may be better ways of expressing the concept in the commercial contracting world.
Ken, you seem to be unaware at just how prevalent this concept is in the commercial contract world. This is a well understood term of art outside of government contracting. My clients routinely ask me for this right by saying “add in a termination for convenience”. In the commercial contract world, what you often seen associated with it is a buy-out right. A right to terminate, but a cost for doing so.
You raise an interesting question as to how a court would apply a good faith obligation to the clause. It’s an intriguing question as to whether a court would decide the question of good faith, in a sense, independent of the clause. I never considered that before.
But I have to side with those who add “or no reason”. Besides being a clearer expression to me of when the parties think the clause could be invoked (by making clear that no reason is necessary — that the question is really a matter of a discretionary decision of the party terminating), there’s also procedural value. The clause will inevitably require that a written notice be sent to invoke the clause. I think it is possible that one could infer that the requirement of a reason (even “any reason”) to invoke the clause as also a requirement as to what the notice triggering the clause’s application must contain for the notice to be effective. No reason seems better suited to avoid an argument that the notice was defective because a reason wasn’t stated.
Ken, to chip in to the chorus, termination for convenience is a well known term of art in English and Australian contracting circle, including outside government contracting.
OK, I’ll take you all on, one at a time!
10803: As I mention in my post, the for convenience language sometimes occurs only in the section heading. But often enough it’s used in the body of the provision too.
Your suggestion for how to sidestep the issue in section headings is an interesting one. If Acme is the only party permitted to terminate for any reason and both Acme and Widgetco can terminate for breach, you could apply either of two approaches. Under your approach, you’d use “Termination by Acme” and “Termination by Either Party.” The alternative approach would be “Unrestricted Termination/Termination for Convenience/Termination for Any Reason” and “Termination for Breach.”
Neither approach is completely informative. To achieve that, you’d need to combine both approaches—an unlikely notion. You could mix-and-match, but I’m not crazy about that idea either.
So again we’re looking for the lesser of various evils. I’d normally vote for approach number two, but if it allows me to avoid a debate over section headings, I might go for number one. Let me mull this over.
And I’ll ponder the merits of how you structure your termination provision.
Regarding the merger clause, I agree. The alternatives—”integration clause” and “zipper clause”—aren’t much better.
By the way, 10803, someday you’ll have to unmask yourself!
Mel: Another reader pointed out that in FAR the “for convenience” language isn’t actually “for convenience” in the conventional sense. Instead, “for convenience” as stated in FAR clause means when it’s in the Government’s interest. (I haven’t checked this out myself.) But that shouldn’t make any practical difference: if you want to do something, generally it’s because it’s in your interest.
J and Scott (different from the Scott Wilson who commented earlier): Longtime readers of this blog will be aware that I’ve previously fessed up to being a relative newcomer to commercial agreements. But I’m sticking to my guns.
The fact that a usage is widely embraced isn’t enough, in my mind, to legitimize it, particularly when (1) the usage in question is used to convey a meaning that’s at odds with the meaning in regular usage and (2) a clearer alternative is available.
Regarding or any reason, having a reason to terminate has nothing to do with the other side’s having been a bad actor. Instead, it just means that for whatever reason, termination would serve the interests of the terminating party.
And I don’t think that fear of being called on to state in a termination notice the reason for terminating, even though the contract doesn’t require it, is reason enough to insert in the contract an element that is otherwise illogical.
And by the way, in addition to termination for any reason, another alternative to termination for convenience is termination at will, which is used in employment agreements. This reinforces that terminology is often less a matter of meaning than of habit—often bad habit!
Wow, this is quite a conversation. Let’s try this: in a government contract, there are two termination rights: for default, and for convenience. One major difference between the two is in the rights of the terminated party: a T4C generates a right to a collection from the government that is different from the collection rights (if any) that a T4D generates. And a contract that is wrongly terminated for default by the government is treated as a T4C, thereby entitling or enhancing the collection by the party that was wrongfully terminated.
Your point is a good one: “convenience” doesn’t mean that the government has a whimsical right to walk away, it means that termination is now in the best interest of the government, and it has a price. But this is all government contracts parlance (which does flow down to subcontracts between two commercial parties where the government is not a party). I live in the world of commercial aviation finance, where I don’t think I have ever seen a termination for convenience clause. To those who include such in commercial contracts: does a purely commercial T4C bring a right to collection (wind-up costs, etc.) or does it merely give one party the right to end a contract and simply walk away? If the latter, I think Ken has a point – that’s real convenience, and perhaps too convenient to be enforceable?
I have to say, I much prefer to explicitly add the “no reason” clause. Terminating for any reason implies that a reason is required and I don’t even want to have a discussion with the other party’s counsel about whether we have a reason, what it is, whether it is reasonable, in good faith, etc. In many instances where we could (and indeed want to) terminate for reason, we nevertheless use the no reason clause just to avoid a potential dispute or litigious counsel.
Scott W.: In the commercial context, the idea is that termination for convenience means the same thing as termination for any reason: you can simply walk away. It doesn’t have anything to do with remedies.
But I think it’s important to keep the implied obligation of good faith out of the discussion. Your comment suggests that I object to termination for convenience because it’s perhaps overbroad. That’s not in fact my point.
From my perspective, the broader, the better. Termination for any reason is as broad as you can get, whereas termination for convenience could conceivably be construed more narrowly. A party’s ability to rely on one or other provision might be constrained by the implied obligation of good faith, but that’s something that’s external to the contract. In particular, I see no basis for thinking that using termination for convenience would somehow allow you to sidestep the implied obligation of good faith.
Jim: For any reason means just that—you can terminate for any reason, whether good, bad, or indifferent. Nothing in the contract says that it has to be a good reason, and nothing in the contract says that you have to explain your reason. Have I researched this? No—you shouldn’t have to look to the courts to tell you what’s as plain as the nose on your face.
By contrast, no one terminates a contract for no reason. There’s always a reason. Maybe it’s not a good one, but that’s a separate issue. I’ll be researching the implied obligation of good faith, but I expect that I’ll just confirm my current impression, which is that you can’t draft around it.
Ken: the whole point of the termination for convenience, in the government contracts context, is, on the one hand, to give the government (as spender of the public’s money) the ability to break a contract but, on the other hand, to give the broken party fair compensation for the government’s change of mind. A tremendous amount of negotiation and litigation has been devoted to settling on the amount that the government must pay. And, as I said earlier, if the government tries to weasel out of a contract (and out of T4C liability) on a technicality or a pretextual default that is later found not to be substantiated, then the termination for convenience break charges apply against the government as well.
This is all radically different from the commercial contracts context, where you are discussing a simple walk-away. I would have thought that it is possible to draft a walk-away – aircraft leases, at times, contain lessee walk-away rights by which the lessee, notwithstanding the agreement on a fixed term of years of use (and payment of rent), may simply elect to terminate early and incur no liability, and I have never thought that a lessee in such a case would have any responsibility to act in good faith in deciding to exercise a valuable right it obtained during negotiation.
That’s why I tried the “remedies” approach – the government must pay to exercise the right, but it must always have the right. In the commercial world, if you agree that your counterparty can have a walk-away right for any reason anbd with no recourse to break payments, what difference does it make if he later exercises it because he’s mad at me (i.e., that he acted in bad faith)?
Scott: In response to your closing question, courts have used the implied obligation of good faith to limit a party’s ability to terminate. You can expect a post on this soon.
Hey, hold on—I’ve already written that post! It’s the one about at its discretion.
Inspired by my rereading that post, I offer the following summary: If you’re using termination for convenience in an attempt to get around the implied obligation of good faith, I suggest that (1) your semantics need recalibrating and (2) you’re doomed to fail. If your objection is that the term is so entrenched it’s not worth changing, I have more sympathy, but not much: termination for any reason is more broadly used and ultimately expresses more clearly the intended meaning. I’m more open-minded regarding the wording to use for the section heading. Regarding and for no reason, there’s no point my repeating myself. (Of course, none of this applies to termination for convenience in the context of government contracts!)
I agree that “for convenience” is not helpful or accurate. I’m not sure “for any reason” is better, if for no other reason than the poor ‘optics’ of that phrase on paper. (Also, ‘for any reason’ implies at least one reason).
Unfortunately, most clients buying services will expect to see ‘termination for convenience’ in a term sheet or draft contract. Vendors certainly use the term, esp. in the context of the fees they are owed upon its exercise.
Personally, I prefer “termination at will”.
Sol: I defy you to come up with a scenario where someone isn’t terminating for some reason, whether good, bad, or indifferent. Ken
I missed your earlier comment to the same effect. I have to agree with you. There’s always a reason, even if that reason is unreasonable.
I’ll try “for any reason” in a deal, and let you know what happens.
Ken, I have done deals for and with regulated entities such as banks, finance companies and insures who are heavily regulated and can be ordered by their regulators to cease certain market related activities. When this order is delivered the entities typically are given time to exit the market, wind-down/sell out of their position.
I have extended the notice to 90 days, but have never removed it for the reasons set out above. Many suppliers will want this clause to be mutual, I have the view that there would be extremely rare cases where a supplier would want to terminate a contract with its paying customer.
Hey Jeff, If our contract requires ‘written’ cancellation, which we got on a Saturday, but client cancelled verbally on Tuesday prior, can we insist on written date for final billing purposes?