Despite not knowing the full details of the contract between the Ministry of Education and Talent2, law lecturer Prof Rex Ahdar said there were clauses in every contract that allowed termination.
''You can't terminate a contract for every little thing that goes wrong - not for minor issues.
''But if one side is clearly in breach of a contract, then the contract can be cancelled and the other side can contract with whoever they choose.''
Prof Ahdar said there were two tests for serious breach of contract.
''One test is where the parties have agreed that the performance of the contract is essential to the ministry.
''In this instance, that means it is essential staff get paid correctly.
''The second test is whether the effect or consequences of the breach are substantial.
''Either legal test appears to have been met,'' he said.
''It sounds like Talent2 have created serious breaches.''
The payroll system has been plagued with problems since it was rolled out last year, including issues with overpayment, underpayment, and non-payment of staff.
''Their [Talent2's] conduct could constitute a sufficiently serious breach to enable the Ministry of Education to cancel the contract,'' Prof Ahdar said.
''It also gives them the right to recover costs of damages - that could be pretty huge.''
Prof Ahdar said he had followed the Novopay situation in the media, but did not know enough about the contract to say whether the ministry should ''bail out''.
''Should they give Talent2 another chance to sort it out, or should they wash their hands of it and go with someone else?''Only they [the ministry] can answer that. The law is certainly in their favour.''
Erica Lloyd, communications director of the ministry's former payroll provider Datacom, could not comment on whether the company could reinstate the ministry's former payroll system.
However, she said the company was happy to be part of a ''constructive conversation'' with the ministry about that possibility. The ministry advised school staff yesterday that the next two Novopay pay rounds would have an increased number of errors, but assured them it was working to resolve issues as soon as possible.
The ministry also reminded schools it was able to make direct payments to any staff member who was not paid or was underpaid.
Issues were expected to arise from the start-of-year process which involved thousands of staff who moved schools at the beginning of the new school year, or who started work in a school for the first time, and those who needed to rejoin the payroll because they were not employed during the school holidays.
Ministry of Education workforce group manager Rebecca Elvy said the education sector had been informed about the increased potential for error. The ministry was testing a solution to address the well-known issue with inaccurate banking/staffing reports, which was expected to be ready for release in the next couple of weeks, she said.
