Quebec’s Civil Code creates an exception to the general rule applicable in contractual matters for “contracts of enterprise” and “contracts for service” which provides that a party to a valid contract entered cannot terminate the contract unless the party demonstrates that the other party failed to perform its obligations.
A “contract of enterprise” or a “contract for services” is defined as a contract “by which a person, the contractor or provider of services, (…) undertakes to carry out physical or intellectual work for another person, the client, or to provide a service, for a price which the client binds himself to pay.” The concept of service or enterprise agreements has been interpreted very broadly by the courts over the past years, and a contract may be qualified as a contract of service or enterprise regardless of what the parties call it, provided that it meets the definition of the Quebec Civil Code.
If an agreement can be characterized as a contract of enterprise or a contract of service, the other party (client or franchisee, if applicable) may unilaterally terminate the contract without cause or serious reason even if the agreement is for a fixed term and despite any express termination clauses in the agreement. Such party does not need to give a formal notice of termination to justify its decision nor does it have to respect any deadline for exercising its right. However, the moving party cannot abuse this right of termination; such right must be exercised in good faith.
In addition, if such party exercises this right of termination, it does not have the right to seek damages for loss of profits; only expenses reasonably incurred by the performance of the contract before its termination or the loss of profits not in relation to the contract rightfully terminated may be claimed.
Fortunately, this termination right provided for in the Quebec Civil Code can be waived by the agreement. Contact any member of our firm’s franchise and distribution group to discuss whether any agreement is a contract of enterprise or for services, and for appropriate language to waive a without-cause termination right.