Is a high severance fee for early termination of a b2b contract valid?

When early termination of a fixed-term business contract occurs, general terms and conditions often demand a fixed and sky-high termination fee. However, since the introduction of the B2B legislation to protect businesses from abusive clauses, this is no longer an automatism. If a stipulated compensation for damages is manifestly disproportionate to the actual disadvantage suffered by the supplier, the court may declare this clause completely null and void.

The facts

When companies enter into long-term contracts, they try to build in financial security. However, in a case before the Enterprise Court of Antwerp, Mechelen Division, this practice was critically scrutinized in a judgment dated April 25, 2025.

The facts were as follows: a company entered into a three-year affiliation agreement with a social secretariat. Even before the scheduled expiration date, the company decided to terminate the agreement early. The social secretariat then demanded a hefty lump-sum termination fee. They based this on their general terms and conditions, which stipulated that the terminator had to pay damages equal to 100% of the total management costs for the remaining duration of the contract (in this case, 20 months left), i.e., approximately 8,000 euros.

The company disputed this amount and argued that the compensation far exceeded actual damages, making the clause to be considered illegal.

Enterprise court decision

The court had to answer the question of the legality of such a high, flat fee. The verdict was clear: a contractually negotiated severance fee valued at 100% of the management costs for a remaining duration of 20 months is manifestly disproportionate to the harm that the service provider could reasonably suffer.

Accordingly, the court declared the clause in question unlawful, prohibited and consequently null and void.

This does not mean, however, that the contract-breaker simply goes free. After all, the nullity of the illegal damage clause does not affect the right of the damaging company to still be compensated for the real damage caused by the non-performance. Because the social secretariat could not sufficiently substantiate the concrete damage, the court decided to set the compensation according to reasonableness and fairness (“ex aequo et bono”) at 4,000 euros (half of the initially claimed amount).

Legal analysis and interpretation

This ruling provides an insight into the practical application of Article VI.91/5, 8° of the Code of Economic Law (CEL). This article contains the so-called ‘gray list’ of clauses for which there is a rebuttable presumption of illegality in contracts between companies. One of these clauses is the clause that, in case of non-performance of an obligation, fixes a compensation amount that is manifestly disproportionate to the potential harm.

For proper application, however, there are legal niceties to consider:

1. The qualification question (damage clause vs. termination clause): Article VI.91/5, 8° CEL applies only to damage clauses, not to termination clauses. With a damage clause, the compensation is a sanction for culpable breach of contract, whereas a termination clause is the price for the legitimate possibility to terminate the contract unilaterally. Since fixed-term contracts are in principle not terminable early, termination before the expiration date constitutes a contractual breach. Consequently, the clause regulating compensation for it is a damages clause. Important nuance: judges pierce through misleading terminology. Renaming a veiled damage clause as ‘severance pay’ doesn't work, as we also explained in our blog on breach of contract in long-term service contracts: is a high severance fee always valid?
2. The burden of proof and manifest disproportionality: As a general rule, the burden of proof of illegality lies with the person invoking the nullity. Thus, the debtor must prove the manifest disproportion between the amount billed and the reasonably foreseeable damage at the time of the conclusion of the contract.
3. Refuting the presumption: Even if a clause ends up on the gray list, the creditor has the opportunity to rebut the illegality presumption. In doing so, one can point to the specific circumstances of the agreement and show that there is no actual imbalance.

What this specifically means

For companies working with general terms and conditions, this is an important signal. Blindly demanding the full remaining contract value (often including lost profits as well as saved costs) is increasingly being punished by the courts. Do you draft contracts? Then make sure that your damage clauses are realistic and in proportion to the actual costs incurred in the event of a breach of contract.

On the other hand, are you the party who wishes to terminate the contract? Then don't be intimidated by astronomical bills just yet. The B2B law protects companies from abuse of power through unreasonable standard clauses, as long as it is legally a ‘damage clause.

Note: this is not a free pass to just cancel any contract free of charge. If your contract does not formulate the cancellation fee as a sanction, but as a ‘termination clause’ (an agreed price to get the right to terminate the contract early), different rules apply and you may well lose out. You can read how this difference works out in practice in our blog on whether you always have to pay a cancellation fee if you cancel your participation in a trade show.

Frequently asked questions (FAQ)

What is the difference between a damages clause and a termination clause?
A damage clause is a contractual agreement on the compensation to be paid as a penalty when one of the parties fails to fulfill its obligations (or does so too late) (for example, breaking a fixed-term contract). A termination clause, on the other hand, is a pre-agreed price or consideration that one pays in order to obtain the legitimate right to unilaterally terminate a contract in a proper manner.

Is a liquidated damages clause with a fixed compensation of 100% of the remaining contract value legal?
In fixed-term contracts between companies, compensation worth 100% of the remaining costs for the entire term is generally considered “manifestly disproportionate” to the actual harm. The law labels such excessive clauses as unlawful and void.

What happens if the court annuls the damages clause in my contract?
If the clause is annulled, you will no longer owe the sky-high contractual compensation. However, this does not relieve the terminating party from the obligation to compensate for the actual damages incurred. The court will then calculate the compensation according to common law or estimate it based on equity.

Conclusion

Gone are the times when companies in Belgium could hide behind draconian damage clauses in their small print without risk. The Code of Economic Law is strict on contractual clauses that seemingly upset the economic balance between companies. Whether you want to terminate a contract or are faced with a defaulter, a correct legal strategy is indispensable.