Termination fees for telecommunications contracts

Do you find that your internet connection, television and telephony service costs you a lot of money? This would not be surprising considering that the
2019 Communications Monitoring Report
tells us that:

Canadian households spent an average of $233.00 per month on their communications services, an increase of $10.17 (4.6%) from 2016.

In addition, when you are a customer of these large companies, it is easy to feel trapped, because significant contract cancellation fees are often provided if you want to change suppliers.

However, are these fees legal? This capsule will present the applicable law in terms of termination of telecommunications contract.

The old legislative sources

Traditionally, it was article 2125 of the C.C.Q. that established the basic principle that a customer may terminate a contract although its performance has begun, but article 2129 of the Code also provides for the penalties that may be required for such termination. Indeed, this article ensures that a customer who has unilaterally terminated his contract must compensate for the value of the work performed before termination, the value of the goods supplied and any other damage that the other party may have suffered.

However, these articles are only the basic regime and they are not of public order. This means that the parties can contractually postpone these rules put in place by the legislator, as seen in paragraph 50 of that decision. In other words, if the contract is silent, sections 2125 and 2129 of the Code apply, but otherwise, the contractual regime prevails.

This left consumers at the mercy of the big companies that could foresee what they wanted in their contract. Fortunately, despite the indications of the contract, there are remedies to counter the compensation required.

Unfair term under the CPA

Indeed, the concept of abusive cancellation fees can be based on both the Civil Code of Québec or the Consumer Protection Act (C.P.A.). Regular readers of our legal capsules will surely have already heard about the concept of unfair terms in contractual matters. If you are not familiar with this concept, we invite you to consult this article to deepen your knowledge.

The concept of unfair term applies when a party appears to take advantage of its position of strength to apply disproportionate penalties. If this is the case, the courts may then annul if they meet the criteria of article 1437 C.C.Q.. That is why a judge set aside the contractually provided rules for termination fees in a case against Bell because:

“Bell benefits, not to say abuses, in a way, a dominant position and deviates from generally accepted contractual practices.”

The new provisions of the CPA

Despite the protection afforded by the principle of unfair terms, this regime proved to be of very little use in protecting the public from large multinationals with a monopoly on essential services. Indeed, the criteria were difficult to apply and this subject was the source of the greatest number of complaints to the Office de protection du consommateur. That is why in 2009 Parliament introduced sections 214.1 to 214.11.

These articles apply to any contract for the successive performance of a service provided at a distance, which is the case for telecommunications contracts. However, those articles distinguish between a fixed-term contract and a contract of indefinite duration.

In a fixed-term contract, if the consumer has not received an economic benefit, the cost of termination may not exceed the lesser of $50 or a sum representing 10% of the price of the services provided for in the contract. However, if an economic benefit has been granted, for example, if the consumer has received goods at a reduced price, such as a telephone, section 79.10 of the Regulation respecting the application of the Consumer Protection Act provides that the maximum compensation is the number of months remaining in the contract/duration of the contract, multiplied by the discount on the price of the property.

For a contract of indefinite duration, if the consumer has not received an economic benefit, the termination cost must automatically be $0 under section 214.8 of the Act.

This would be the case, for example, with Netflix, which could not charge a cancellation fee if you wish to withdraw from your contract. If there is an economic benefit, section 79.11 of the Regulations under the Act provides that the cost of cancelling the contract must be at most the balance on the price of the property, less 1/48 of the balance on the sale price of the property, multiplied by the number of months elapsed in the contract. This means that after 4 years there can be no compensation. An interesting effect of this calculation is that if you have maintained your contract of indefinite duration for more than 4 years, then it is illegal for the service provider to charge you severance pay, even if it has provided you with an economic benefit.

In conclusion, new sections 214.1 to 214.11 have the law applicable in telecommunications contracts. Before that date, it was necessary to prove the exploitation of the consumer, but nowadays it is only necessary to check whether service providers comply with their obligations under the legislation.

If you believe that your rights are not being respected, chances are you are not alone in your situation. In some cases, class action may be possible. Do not hesitate to contact us to know your options.