Wrongful Termination and the Right to Cure

Wrongful Termination and the Right to Cure: The Subcontractor’s Perspective

In a recent case, a subcontractor asserted a wrongful-termination claim against a contractor when it was terminated for violating certain safety rules of the project. When the subcontractor’s personnel were seen crossing “live” transit tracks, the owner sent a letter to the contractor precluding the subcontractor from accessing the project, and the contractor terminated the subcontract.  Yet even when the subcontractor allegedly violated safety protocols, it still had a contractual right to cure.

Background

Subcontractor was hired by Contractor on a job to rehabilitate escalators in MARTA stations throughout Atlanta. Subcontractor provided certain electrical work. A safety inspection by MARTA cited Subcontractor for somewhat minor safety violations. But in a subsequent safety inspection, MARTA cited the Subcontractor because its principal and another employee crossed “live” MARTA tracks during normal operating hours.

In response to the crossing violation, MARTA revoked access to the project for “those personnel” of Subcontractor who were found to have crossed the “live” tracks. And it directed Subcontractor to cease all further work until MARTA’s investigation concluded. Upon conclusion of the investigation, MARTA directed Contractor to immediately remove Subcontractor from the Project.

Citing the crossing violation, as well as certain defective work, Contractor terminated the subcontract. In response, Subcontractor filed suit for wrongful termination.

Before trial in the litigation, Contractor filed a motion for summary judgment. After the court granted Contractor’s motion, Subcontractor appealed.

Wrongful Termination and the Right to Cure

First, the Court of Appeals properly examined the subcontract, which allowed termination if Subcontractor repeatedly failed to properly perform and if Contractor provides a 10-day notice. In light of the Subcontract’s termination provision, the Court of Appeals held that a jury — not the trial court — should determine whether Subcontractor repeatedly failed to comply with the subcontract. Moreover, a jury should determine whether the denial of access to certain personnel of Subcontractor would prevent Subcontractor from taking corrective actions during the 10-day cure period.

Second, the court determined that the meaning of “repeatedly” in the termination clause was ambiguous as it might require multiple instances of Subcontractor’s failures. Since the subcontract did not define the number of such instances required to justify termination, a jury must make the determination.

Subcontractor reiterated that it worked on the project for two years before the first safety violation. Moreover, the citation to defective work is unrelated to the safety violations.

Third, the court focused on Subcontractor’s contractual right to cure. Here, Contractor failed to provide notice of any defective work until after Subcontractor was denied access to the property. Thus, a jury might find that Contractor failed to satisfy Subcontractor’s right to cure, as required before terminating the subcontract.

Contractor argued that giving Subcontractor an opportunity to cure was a “futile act,” which should have excused Contractor from granting such an opportunity. In response, Subcontractor argued that it could have cured the work using other personnel who were not barred from the project by MARTA. The court agreed with Subcontractor and held that a jury should make the determination.

Conclusion

This case illustrates the difficulties in terminating a contract. Courts have generally required parties to comply with express terms of a termination clause before a party may rightfully terminate. As the court noted, ambiguity in such clauses could result in unintended consequences. Thus, it is best to carefully draft a termination clause and follow it to the letter.

Moreover, subcontractors that are summarily terminated without proper cause or without receiving the right to cure may assert the holding in case as support against an alleged wrongful termination.


 

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