The Cost of Termination for Convenience Clauses

By Ben Bronston

More and more carriers are including language in their agency agreements that permits them to terminate for convenience.”  This is one area where agents must often fight for fairness. A termination for convenience clause allows the carrier to terminate your agreement even if youve done nothing wrong all the carrier has to do is provide you with notice of its decision to terminate. Clearly, signing an agreement which can be terminated by the carrier for convenience is not optimal. Why should the carrier be permitted to terminate the contract at its whim? The answer is it shouldnt. Thats why I always prefer to remove this language entirely.

Some of my clients tell me they can live with termination for convenience clauses as long as their commissions continue to be paid. They say they can always sell for another carrier so they would rather focus on other issues in the contract negotiation process. I understand this philosophy and I agree it may be prudent in certain circumstances, but I think it ignores a few fundamentally important realities. 

First of all, no longer having a contract with a carrier also means you can no longer market that carriers services to existing customers. For example, what if you sold a T1 from Carrier A to a customer for one location and Carrier A subsequently terminates your agreement for convenience? If the customer likes Carrier As service and wants the same service at another location, what do you tell the customer?  Im sorry, but I can no longer sell for Carrier A?” No matter how you spin it, this might leave the customer wondering why. Also, what about deals that were in the hopper at the time of termination? You might lose those opportunities if you can no longer offer Carrier As services.

In addition, youve probably invested quite a bit of time, money and/or other resources in the carrier relationship. Sure you can protect your commissions with a properly worded evergreen clause, but what if you signed on with the carrier after spending a lot of time deliberating between that carrier and another that offers identical services?  To wake up one morning and have the contract stripped away from you negates much of what you did to invest in the relationship to begin with.

At the end of the day, customer acquisition and retention is the agent channels primary value proposition without agents there would be no customers. Termination for convenience clauses present too many opportunities for carriers to abuse this benefit. Even though carriers argue these clauses are essential to permit them to get rid of non-producing agents, sometimes it seems as though carriers exercise their right to terminate for convenience merely as a means to justify discontinuing payment of residual commissions. Even if the contract calls for payment of commissions after a termination for convenience, why put yourself in the position of having to enforce your rights?  And you probably cant take the position that you can just move your customers if the carrier stops paying your commissions this ignores the fact that communications offerings are too complex these days for customers to be easily moved from one carrier to another. Besides, most carriers require that customers agree to a minimum term anyway.

Carriers worry about agents who just linger without continuing to place new business. They get frustrated when they have to issue a check each month to an agent who hasnt sold anything in years. However, the reality is there really isnt any bona fide justification for a carrier to insist upon including a termination for convenience clause in your contract. It sends a clear message that they want the unfettered right to cut you loose at any time. And if they somehow use it as a means to justify discontinuing your commissions, they know that many agents would rather walk away than incur the expense of filing suit.

The bottom line is that agents often overlook the importance of negotiating a truly balanced agency agreement. This ignores the fact that one of the most important aspects of any successful agency relationship is a properly negotiated and drafted agency agreement. New clients often ask me to help them correct mistakes in their current agreements. Unfortunately, once the contract has been signed the agent often loses a significant amount of negotiating leverage. It is therefore crucial that agents know what the contract says before they sign it. That includes knowing what rights the carrier has to terminate you and what rights, if any, you have to continue to receive commissions after termination. The easiest and most effective way to do this is to hire an experienced telecom lawyer to help you understand the agreement and avoid any potential pitfalls. Even if the carrier is unwilling to remove the for convenience” language, an experienced telecom lawyer can help you craft language that mitigates the damage. For example, a properly worded evergreen clause cant remedy the situation entirely, but it can at least help you weather the storm by making it more probable that commissions continue to be paid post-termination.

Ben Bronston
co-founded the law firm of

Nowalsky, Bronston & Gothard

. He has been representing agents for the last 17 years and can be reached at [email protected]
.
The opinions expressed in this article are the authors alone and should not be construed as legal advice.