COVID-19 + force majeure — sounds like two components of a contemporary science fiction novel, no?!
The pandemic that is COVID-19 (yes, it’s officially a “pandemic” if you haven’t already heard) is affecting every single one of us, including Tom Hanks. Some effects are minor, like increased hand washing, others not so. Last night, Oregon’s Governor announced that any meetings of more than 250 people are cancelled for the next month. The NBA’s season is suspended. Disneyland is closing operations until the end of March.
Yesterday, in a Facebook group I am a part of, I saw a question from a small business owner about the effects of COVID-19 on her business contracts. Specifically, she was wondering about the force majeure clause in her contract and what that meant in the context of COVID-19. This got me thinking that many of you are or will be finding yourselves in similar positions, regardless of where you fall on the COVID-19 panic spectrum. In this post, I will explain what a force majeure clause is; how it can impact your business relationships; and how COVID-19 becomes relevant to this conversation.
Force majeure. Whether or not you read it and pronounce it with a French accent (in your head or out loud), a force majeure clause is one that exists in contracts to mitigate the negative effects of events that are beyond our control and result in harm that was not foreseeable. “Like the coronavirus pandemic?” EXACTLY.
You’ll usually find these clauses at the bottom of a contract, along with the rest of the legal kitchen sink (what attorneys call “boilerplate” language). Perhaps you’ve noticed this in your own business contracts or other businesses’ contracts you have signed. Perhaps your eyes stopped reading and went to the next section as soon as they saw the word “majeure.” I get it.
Force majeure clauses give people a way to allocate risks and reduce uncertainty by fleshing out what must happen in the case of an event beyond our control, a force majeure event. Usually, these clauses provide for one or both parties to a contract to be excused of their obligations to perform if a force majeure event occurs and that event makes performance impossible. Force majeure events include things like hurricanes, earthquakes, natural disasters, epidemics, quarantines, pandemics, terrorism, embargos, and labor strikes. It is common for a force majeure clause to spell these events out, as well as what the responsibilities and obligations of impacted parties are when a force majeure event occurs. A force majeure clause may say that a party wishing to be excused of performance due to a force majeure event, like a pandemic, must provide the other party with a specific amount of notice (24 hours, 48 hours, 5 business days, etc.) and mitigate the effects of their non-performance in certain ways in order to avoid breaching (violating) a contract.
If your contract happens to be silent on this topic, meaning you don’t have a force majeure clause in your own contract, then it is important to look at the predictability (“forseeability”) of the event in the context of your business relationship, since that is what a court would do. If an event is unpredictable/unforseeable, then a party’s non-performance may be excused without repercussion.
That COVID-19 has officially achieved pandemic status is certainly a strong argument in favor of excusing performance under a contract. However, it is not an absolute excuse. Your force majeure clause cannot be read in a vacuum and multiple factors must be taken into account in determining whether contract performance is impossible and therefore may be legitimately excused. These factors include: (1) your contract, since other clauses in your contract may affect the interpretation of your force majeure clause; (2) your force majeure clause (if it exists), since some force majeure clauses are written more broadly than others; (3) the relationship of COVID-19 and contract performance, since COVID-19 may not affect performance, say if all performance is related to virtual services; (4) applicable law, since each state may have different precedent in interpreting force majeure clauses; and (5) current events, since the state of our country seems to be changing daily, if not hourly.
If you have questions about a force majeure clause in your contract, your general contract rights or obligations, delaying performance, or non-performance, then please reach out.
Until we talk next, wash your hands, stay as happy and healthy as you can, be smart, be a good person, and try to panic as little as possible.
The light in me,
CW