Protecting Deal Value: Article 2125 C.c.Q. Waivers in Service-Contract and M&A Transactions

Authors: George Maughan and Roy Cheung

The Québec Court of Appeal’s decision in Veilleux c. ICAR inc., 2024 QCCA 1057 serves as a timely reminder that Article 2125 of the Civil Code of Québec (“C.c.Q.”) can a pose material risk in transactional contexts. Unless expressly waived, Article 2125 allows either party to a contract for services to terminate the agreement unilaterally and without cause. In M&A transactions, this statutory default can undermine deal value where key service or enterprise contracts remain terminable at will.

The Court reaffirmed that this termination right applies by default and that a waiver cannot be presumed or inferred implicitly. For transaction counsel, the decision underscores the importance of closely scrutinizing service-contract termination provisions during due diligence.

Article 2125 C.c.Q.: A Default Right to Terminate

Article 2125 C.c.Q. provides that a contrat de service may be terminated unilaterally by either party, even without cause, provided that the terminating party compensates the other for work performed and any resulting damages. In Veilleux, the Court emphasized that the legal characterization of the relationship — whether it is genuinely a services contract for services rather than an employment relationship — is determinative. Where the relationship is truly one of services, the statutory right to terminate applies unless the parties have clearly contracted out of it.

The Court also clarified the scope of compensation under Article 2125. Absent an express contractual provision to the contrary, compensation is generally limited to work performed and reasonable expenses incurred up to the date of termination and does not generally include lost future profits unless otherwise provided.

Why an Express Waiver Is Essential

For service providers—particularly consultants and professionals engaged under fixed-term mandates — the absence of an express waiver of Article 2125 means a client may terminate the engagement at any time, with potentially significant commercial consequences.

Québec courts therefore require clear contractual language to displace the statutory default. As the Court of Appeal recently reiterated « la renonciation à la règle posée par l’article 2125 C.c.Q. requiert l’expression non équivoque d’une volonté en ce sens. »[1]

Conditions for Valid Renunciation

Neither fixing a term nor using language such as « irrévocable » will necessarily establish a valid renunciation. The analysis turns on the contract’s wording as a whole and the surrounding circumstances[2].

The jurisprudence has crystallized three core conditions for a valid waiver of Article 2125:

1. Timing: The waiver must be given after the statutory right has arisen—that is, once the contractual relationship exists.
2. Clarity: The waiver must be expressed in precise, clear, and unequivocal terms. Courts will not infer renunciation from ambiguous provisions such as termination-fee clauses, fixed-term language, or the mere use of the word “irrevocable,” absent unmistakable intent.
3. Consent: The waiver must reflect free and informed consent. Clauses embedded in adhesion contracts or imposed without meaningful negotiation are unlikely to satisfy this requirement.

Transactional Implications: What M&A Professionals Should Watch

From an M&A perspective, Article 2125 presents concrete and underappreciated risks. Where key customer, supplier, or enterprise contracts are terminable at will, the target may lose a major revenue-generating relationship between signing and closing—or shortly thereafter—materially affecting valuation.

Transaction counsel should therefore identify material service or enterprise contracts that remain terminable at will and rigorously assess whether any purported waivers meets the courts’ stringent requirements. Where waivers are deficient or absent this exposure should be addressed in the deal structuring through appropriate representations and warranties, purchase price adjustments, escrow or indemnity mechanisms, and by seeking post-closing assurances or substitute agreements where feasible.

Counsel must also ensure the clients are clearly advised of this risk during due diligence. Professionals representing service providers must be particularly vigilant: overlooking an at-will contract or a deficient waiver can result in the loss of a material contract and the revenue underpinning the target’s valuation.

Conclusion

Article 2125 grants clients substantial flexibility but introduces meaningful commercial and transactional uncertainty for service providers. Where a valid renunciation is possible, Québec courts insist that it be clear and unequivocal, and supported by informed consent. In M&A transactions, this necessitates a careful, evidence-based assessment of any asserted waivers and the use of concrete deal protections to preserve value.

At KRB, our M&A team provides strategic legal support to help clients navigate these issues with rigor and efficiency. We would be pleased to discuss how we can assist with your specific transaction or circumstances.

[1] Steve Brown Machineries Solutions (SBMS) inc. c. Groupe Sutton Excellence inc., 2021 QCCA 302, at para. 86.

[2] Ibid, at para. 101.