The Most Slept-on Contract Clause: Termination
In their first year of law school, law students take a course on contracts and learn an important principle: the law prioritizes individuals' freedom to contract. In essence, this boils down to the law respecting individual's rights to agree to the contract terms they want, even if they're getting a bad deal. It's not the law's job - the logic goes - to dictate the contract terms for folks on their behalf. Instead, the law acts as a governing mechanism to resolve disputes or problems that arise in the free-wheeling world of contracts.
Since I became a transactional attorney I've seen a lot of weird contract clauses. Perpetual non-competes, half-baked intellectual property clauses, a cover page of an IPO titled "initial pubic offering."
But one eery truth has emerged as I've gone deeper and deeper into the world of content creator law: the lack of termination clauses.
Termination Clauses - what are they?
A termination clause lays out the circumstances under which either party may terminate the agreement and walk away. The most basic style of termination clause allows either party to terminate the agreement after giving a certain number of days’ written notice. Like this:
“Either party may terminate this Agreement by providing the other party with a written notice of termination at least five (5) days prior to the intended date of termination.”
This clause is simple enough. Once one party gives notice that they intend to terminate the contract, five days go by and the contract is terminated. The only requirement to walk away from the contract is to tell the other party “hey, I want to walk away. Here’s my 5-day notice.”
Termination clauses are arguably the most important term in a contract because they lay out how a party can leave the agreement and move on in life. Without them, the parties risk getting stuck in an agreement they don't like and - in the worst cases - paying thousands to get out of the agreement.
E's Story
Take E. E is a creator making nearly seven figures a year in brand deals. E was working with a management company (basically a middle-man for brand deals that took 20% of any deals they procured for E) & had signed a three-year agreement with them that didn't include a termination clause. After a few months it became clear that the working relationship between E and the agency was strained beyond repair, and E wanted out. The only problem was that the agreement didn't include a way for E to leave the contract.
E was perplexed. They are a free person, why wouldn't they be able to simply leave the contract? The answer is what we talked about above: contract law respects individuals' rights to contract for themselves, even if they are signing onto a poor deal, and since E agreed to a contract without a clear way out, they were now stuck in a sticky legal situation.
The management agency demanded $150,000 for E to leave, reasoning that they would have received such income from E's relationship if they continued the relationship through the end of the 3 year term. Ultimately the case settled & E was free to work with other agencies.
Had there been a simple termination clause for E in the original management agreement, this debacle would have been entirely avoided, since E would have had the freedom to simply walk away.
One of the first edits I make in brand deal and management contracts for creator clients is a termination right. Despite their "unsexiness," these clauses have huge impact and answer a fundamental question: if I don't like this deal, how can I leave it?
This is an excerpt from my course on Protecting Your Rights in Brand Deals, which dives into the legal rights every content creator should know about. Right now, anyone who purchases it will also receive a complimentary creator-friendly brand deal contract template.
