Early Termination Fee Clause
(Outsourcing)

Summary

This outsourcing or services agreement clause addresses the fees that may be incurred for early termination of such agreement, whether termination for convenience or breach. This clause includes practical guidance, drafting note and an alternate clause. Parties to an agreement usually contemplate the length of the agreement (e.g., three to five years) when calculating their needs, costs, fees, and profits. A change in the length of an agreement, through a termination, can dramatically impact the financial condition of the non-terminating party (e.g., termination occurring after an investment in new equipment or personnel to produce the services). To help offset such financial impact, a party to the agreement may want to include a termination fee forcing payment from the party terminating the agreement early. For a full listing of related contract clauses, see General Commercial Contract Clause Resource Kit. For more information regarding termination rights, see Termination and Cancellation Rights. For non-jurisdictional term clauses, general termination clauses (including termination for change of control, at-will, etc.), or a non-jurisdictional combined term and termination clause, see Term Clauses and Term and Termination Clause, respectively. For a termination on bankruptcy clause, see Ipso Facto Clause.