How to Cancel Clients Without Getting Sued

street sign saying time to say goodbye

Certain kinds of behavior that were long considered acceptable, or at least tolerable, are experiencing pushback on a scale rarely seen before. While this might prompt some companies to jump on the bandwagon and stop doing work with anyone accused of misconduct, it’s important to remember that there are legal consequences to terminating your professional relationships. That said, there’s a right way and a wrong way to terminate those relationships, so let’s take a look at the differences between the two approaches.

General Rules

For the most part, privately owned businesses get to decide with whom they conduct business, when they stop conducting business with a certain party, and why the business relationship should end.

The exceptions to this rule are stopping business when: 1) it violates a contract; 2) the decision is made for a discriminatory purpose against a protected class of people; or 3) it is done in bad faith. Let’s start by taking a look at contracts.


Before you terminate any contract, you need to make sure the termination does not violate the terms of that contract. Many contracts include a provision that allows either party to terminate the relationship for any reason, while other contracts include a clause that only allows one party to terminate the contract for good cause. Good cause can include anything from common sense actions such as failure to pay for services on time, to more modern terms such as the other party exhibiting behavior or being involved in activity that is not in alignment with the other party’s values. Assuming your company is privately owned, you are well within your rights to include these types of clauses in your contracts with your vendors and clients, but remember there’s a possibility that it could put you at a competitive disadvantage. Some prospects might see that clause in the contract and decide to work with a company with no such provision in their contracts. Whether you can afford to lose out on that business is something only you can decide.

Enforcing the clause when terminating a contract also comes with a certain amount of risk. For example, you could terminate a contract after a vendor or client receives some bad press, but they might claim the bad press was just a pretext for you to end a relationship you were already looking to end, in which case your company could be exposed to a claim for bad faith.

If you have a clause that prohibits derogatory behavior, you need to make sure the contract clearly gives you the right to make any such determinations at your sole discretion. It is also crucial that any source of derogatory behavior is credible and can be verified. Reliance on mainstream outlets or information based on first-hand knowledge is less likely to be questioned than information from obscure new outlets of information passed along the grapevine.

Subcontractors vs Clients

You need to be especially careful when deciding to terminate a relationship with a subcontractor because some states give subcontractors the same protections as employees in certain situations. Choosing not to work with a subcontractor on the basis of race, gender, ethnicity, or religious or political affiliation is illegal.

This can be particularly difficult in today’s political climate because the lines between personal values, religion, and political stance are closely tied. True subcontractors do not have the same protections as employees, and at-will employment is the pre-dominant law in most jurisdictions. However, a subcontractor could exhibit behavior that does not align with your company’s values, and their contract could result in a claim that you discriminated against them on the basis of their religious affiliation, even if that was not the case. By contrast, terminating a relationship with a client with certain religious or political affiliations is much less likely to cause you any legal troubles because they do not have the same protections as employees or subcontractors.

On the other hand, continuing to work with a customer, even after becoming aware of their problematic behavior could leave you vulnerable to different legal troubles, depending on the nature of their misbehavior. For example, let’s say you have a client facing allegations of sexual harassment and/or assault. If you have employees who need to work on site for the client, you might cite concerns for the safety of your employees when terminating that contract.

Alternatively, you could decide to continue the relationship, but refrain from assigning your team members who may be offended by the client’s beliefs and practices. For example, keeping female team members away from a client in the news for rampant sexual harassment. However, any female team member that has the potential to work with that person and does not do so due to safety concerns could then leave you vulnerable to an employment lawsuit on the basis of gender discrimination internally.

Best Practices for Applying Your Core Values to Everyone Who Works with You

Reinforcing culture and core values can be tricky. Consistency and transparency are the keys to making sure all your vendors and clients are in alignment with your core values. The policies and manner in which the policies are carried out must have an objective standard in order to minimize the possibility for challenges and lawsuits against the company.

Get an Experienced Business Lawyer on Your Side

Whether you’ve already taken steps to ensure all your business relationships align with your core values, or you’ve been thinking about taking the first steps in that direction, you should have an experienced business lawyer at least look over your system for analyzing your business relationships. These steps should be taken to protect your business, not put you at greater risk for legal action, so let us help you make sure that’s the case.