Force Majeure Clauses & COVID-19

Force Majeure Clauses & COVID-19

As the novel coronavirus, COVID-19 continues to spread across the United States and the rest of the world, businesses are being forced to shutter their storefronts in an effort to “flatten the curve”. As more and more businesses close due to state and federal mandates, attorneys are handling an influx of calls and emails from clients inquiring about their responsibilities as a business owner and employer as well as clients wondering about their rights as an employee. One popular topic of conversation: force majeure clauses often included in contracts with vendors, suppliers and contractors. What exactly is force majeure and how does it apply to these unprecedented times of forced closures and a halted economy?

What is Force Majeure?

It may sound like a super fancy and technical lawyer term, but the basic principal behind force majeure is actually quite simple. Force majeure is Latin for “superior force” or “unavoidable occurrence”. Generally speaking, when used in a contract, force majeure that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties. These events or circumstances can be, but are not limited to:

• Acts of God (i.e. severe weather/nature events like floods, fires, hurricanes, earthquakes, etc.);
• War, acts of terrorism and epidemics;
• Acts of governmental authorities (i.e. changes in laws/regulations, etc.); and
• Strikes and labor distributes

Force Majeure clauses are designed to limit damages in case where the expectation of both parties and the performance or purpose of the contract in question cannot be fulfilled due to circumstances beyond the control of both parties.

Can Force Majeure apply to Coronavirus?

The biggest obstacle lawyers have faced in the last several weeks has been helping their clients determine if force majeure clauses can be invoked due to the spread of COVID-19 and closure of their businesses. Determining if force majeure can be applied is a case-by-case situation that relies on an intense fact-checking investigation and the language of each specific contract as well as the nature of the obligations and provisions of the contract.

Our advice to clients would be to sit down with a skilled attorney to go over their contracts with a fine-tooth comb to determine the parameters of their force majeure clauses, if they have any.

Other Options: Frustration of Purpose

Some contracts do not contain force majeure clause, for a number of reasons. If your contract doesn’t contain a force majeure provision, or if an event falls short of activating your contracts force majeure provision, the parties may wish to explore whether the doctrine of “frustration of purpose” applies.

Frustration of purpose, much like force majeure, occurs when an unforeseen event undermines a party’s purpose for entering into a contract and drastically changes the original purpose as it was agreed upon in the contract. Frustration of purpose can excuse a party from performing a contract if:

• The principal purpose of the contract or the means of performance have been destroyed, making it impossible for the party to perform; or
• The principal purpose of the contract has been frustrated by an event that neither party could have anticipated at the time of entering the contract

It can be difficult to prove frustration of purpose and courts will typically not allow the parties to overcome the language of their contract or the absence of a force majeure clause by asserting frustration of purpose.

Our Advice to Our Clients

At a time of great uncertainty of what the future holds, the fate of your business and it’s path forward doesn’t have to be as unclear as the rest of it. We urge our clients, both business owner and employee, to reach out to us with any matter- small or large. Let us help you review your contracts and provide guidance on your next steps. Our skilled Employment Law and Business Attorneys are standing by to help. Give them a call today (410) 535-6100 or send an email to info@ferrantedill.com.