Hard disagree.
What you're conceptualization here is twisting the definition of "mercenary" in order to fit the rules of a video game. In other words, you (figurative) want to do civilian massacre missions and would prefer that the game universe not consider it a war crime or murder. But if civilian massacring and other similar crimes were treated as war crimes then we'd have the opportunity to engage in extremely high-risk/high-reward activity.
What we need is for the game to mirror reality a little more... it would get quite interesting...
Let's say you take a civilian massacre mission. If authorities catch you in the act of murdering then you'll get instant maximum notoriety and extreme fines. All of civilized space would treat you as the worst possible threat. Consequently the rewards for this activity would be greatly improved due to the risk involved. You are not just a simple mercenary fighting for a side. You are a war criminal and the faction that hired you would disavow any knowledge of interacting with you if you were caught.
So what about mitigation?
First, you should be able to hide your identity when performing these tasks. Otherwise getting caught would be a foregone conclusion especially if you were doing in a lawful system. No amount of credit/material rewards would be worth getting maximum notoriety just to complete a single mission. So it should be possible to spoof your identity in order to deal with being "caught". A lot of interesting gameplay could be created around this.
Second, wiping the slate clean from maximum notoriety should not be possible by just waiting it out. You should have to break into the criminal database and clear your record. Doing so should be difficult but not impossible. Again this makes sense from a logical point of view - society isn't generally open to war criminals being rehabilitated over and over again. Perhaps there would still need to be a timer of sorts so that PvP griefing/etc wouldn't be easily cleared.
The game would need to do a better job at communicating the risk being taken by the player when embarking on these missions. Like categorizing illegal missions in a completely separate way so that it's unambiguous: here be dragons!
If FD were to ever redo C+P this is the direction I wish it would go. Logical consistency solves a lot of problems. Griefing in starter systems would impose such draconian penalties that most people wouldn't bother doing it more than once. Sure it would still happen and can't be "prevented" but the rate of this behavior would drop so much as to not really matter anymore.
It also opens the door for a much deeper and challenging criminal path for people that are into that kind of thing (both PvE and PvP). There's so much opportunity here.
Imagine if players had the ability to scramble incoming scans. The scanner would just see a jumble of random characters. This would of course attract a lot of unwanted attention and the scrambler would have finite uses. Counterplay would be military grade scanners that all system defense ships would be equipped with. Players can equip them too at the cost of it using a lot of mass/power (so it's not always equipped). Players could now "fight" criminals by interdicted them and killing their scramblers with a modest reward for doing so. And if unscrambled criminals are caught then they receive extreme draconian punishments that take a long time to undo.
Obviously a system like this can be tuned so that new/unsuspecting players aren't stuck with draconian penalties. But this is also pretty easy to solve because career criminals are repeatedly caught over time.
I'm using the point that you hi light to argue for more nuance, where there is none, and you are disagreeing with me in order that you add one more dimension of nuance, in my previous posts I've mentioned k dimensions, that is what the k if for, a variable that replaces the numerical quantity of dimension required to represent every degree of nuance; As such, what are you hard disagreeing with exactly, which order of logic?
A linear representation of the 'levels' of nuance is a gross over simplification, the concept that I am arguing for has little to do with the semantics of the word 'mercenary' it very much has to do with groups, making the model cyclic and not linear, however this is a complicated problem and an involved solution that is not an easy to explain.
Arguing the rule book and the semantics of the words in it, is non sequitur in the context of a systemic solution, a judicary system capable of applying any rule book that it is given, intelligently.
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Although this has nothing to do with the system proposed, and more to do with one possible rule set that said system might be given to implement; I will also add:
The word "mercenary" comes from the Latin word
mercenarius, meaning "hired" or "working for pay." It derives from
merces (meaning "wages" or "reward"), referring to someone who is motivated by financial gain rather than loyalty or duty. Over time, this term evolved to describe soldiers hired to fight for foreign or private armies in exchange for payment.
The mercenary notion that you describe pertaining to the rules of war, could only apply within a totalitarian system; A system that does not exist in the current galactic balance. Perhaps there will be some agreement between all factions as to some holy governing book; I for one am do not regard this as ever being likely to happen. As such, I rebuke your rational as being of an ideal that is only achievable by dictate, the pilots federation would have to become a totalitarian overlord to implement such, but this is not nor has it ever been the role of the pilots' federation.
The entire raison d'être of the pilots' federation is to maintain confidence in pilots, that you can trust in their ability and their nature, to get your job done. Of course, pilots who have killed all their passengers on public transport missions or steal their clients cargo, would quickly loose their standing with the federation. But not abiding by the rules of a foreign power, when another power has signed a contract assuming responsibility for their acts; how is this going against or breaking confidence in the federation? Quite the contrary, it is bolstering the very foundations.
Perhaps a more pertinent point, at this time: how in the galaxy are you going to enforce that the thargoids follow your dictate?