Termination At Will

Termination at will or termination at the employer's convenience clauses have become very common over the past 20 years. The clauses usually give the employer the right to escape from what is becoming an onerous contract but very rarely give the contractor the same right.

Obviously a clause such as this is very useful for the employer in cases where the project is abandoned for commercial, financial or political reasons, or possibly even if the contractor is underperforming to an extent not sufficient to allow termination for cause.

The FIDIC Red Book provides:

The Employer shall be entitled to terminate the Contract, at any time for the Employer's convenience, by giving notice of such termination to the Contractor. The termination shall take effect 28 days after the later of the dates on which the Contractor receives this notice or the Employer returns the Performance Security. The Employer shall not terminate the Contract under this Sub Clause in order to execute the Works himself or to arrange for the Works to be executed by another contractor.

Clauses such as this cause a good deal of heat, especially if the contractor feels that he has lost a very lucrative contract without compensation. Contractors will want to see if anything can be done to improve the position. There are two issues to consider: first, what the clause states and second, the applicable law.

Whilst every applicable law needs to be expressly considered, there is a reasonably common theme internationally. Termination at will clauses seem to be accepted if they provide for the contractor to be compensated for loss of profit and the project is abandoned rather than given to a new contractor.

It is fairly common for the right to terminate a contract to be subject to strict requirements or approval by the courts. For instance, in France the Code Civile restricts a party's freedom to terminate a contract unless it is by mutual consent or for permissible reasons. However, if an employer terminates for convenience it will have to compensate the contractor for costs and for the loss of profit.

In Australia termination at will is allowed if the contractor is compensated for their losses. Even in the USA (the home of freedom) the employer is required to use good faith and cannot use the provision "simply to acquire a better bargain from another source".

In Egypt the Civil Code provides:

"(1) An employer may terminate the contract and stop the work at any time before the completion...