Termination of fixed-term and open-ended contracts

05 August 2024

Blogs Marc Janssen Procedural & Litigation

Introduction

This blog focuses on the question of whether and under what conditions (indefinite) fixed-term contracts can be terminated in the absence of a statutory or contractual regulation and, in particular, on the length of a notice period to be observed.

Cancellation of indefinite-term contracts

Whether and, if so, under what conditions a fixed-term contract entered into for an indefinite period is terminable is determined by its content and by the applicable legal provisions. If the law and the contract do not provide for a regulation of termination, the contract is in principle terminable. The requirements of reasonableness and fairness may, in connection with the nature and content of the contract and the circumstances of the case, imply that termination is only possible if there are sufficiently serious grounds for doing so. These requirements may also imply, in connection with the nature and content of the contract and the circumstances of the case, that a certain notice period must be observed or that the termination must be accompanied by the offer to pay compensation (for damages). This does not alter the fact that it is possible that a continuing contract concluded for an indefinite period may be non-cancellable according to the intention of the parties. The counterparty of the party who invokes the non-cancellability can, under circumstances, invoke reasonableness and fairness or unforeseen circumstances against it. Even if the law or a continuing performance contract does provide for a regulation of the cancellation, if the law and what has been agreed between the parties leave room for this, the requirements of reasonableness and fairness in connection with the nature and content of the contract and the circumstances of the case on grounds may imply that further requirements are imposed on the cancellation. Finally, reliance on a power under the law or a contract to terminate the contract may under circumstances be unacceptable by the standards of reasonableness and fairness.

Revocation of fixed-term contracts

An important question is whether and to what extent the framework discussed above also applies to termination of a fixed-term contract. In my opinion, termination clauses in fixed-term contracts can also be tested against both the supplementary effect (if the contract allows for this) and the so-called derogatory effect of reasonableness and fairness. The fundamental question is whether the - entire - system outlined above should apply to the terminability of fixed-term contracts - without - notice provisions. For this, it still applies that, in short, no termination is possible except for unforeseen circumstances. It seems to me that the following points of view, among others, should play a role in the question of whether a fixed-term contract can be terminated and, if so, which notice period applies and/or whether compensation or damages should be paid:

The duration of the fixed-term contract: The shorter a fixed-term contract is, the less likely it will generally have to be assumed that it will, in principle, be terminable. The reverse is equally true.
All other circumstances of the case, including (1) the applicable regulations and (2) the nature and content of the contract and (3) the reason(s) for the parties to opt for a contract of this fixed term. Do these reasons constitute a (counter)indication of terminability in the case before us?"
In the context of the supplementary and derogatory effect of reasonableness and fairness, it should be examined in a case at hand whether further requirements should be imposed on the termination, for example (1) the presence of a weighty ground, (2) the observance of a reasonable notice period and/or (3) the payment of a (damage) compensation.

Practice tip

It makes sense - because in principle it is the starting point between professional parties - to include in a contract a proper regulation on termination. This should regulate, among other things, whether and when notice can be given, the notice period and the consequences of termination (e.g., compensation or not, whether or not to continue supplying during the notice period, whether or not the parties can place (additional) orders during the notice period, etc.). Do you have questions as a result of this blog or do you have other corporate law questions? Then please feel free to contact Marc Janssen or any of the other members of the Procedures and Dispute Resolution section.