Uncertainty lies ahead for many businesses in the United States as the coronavirus pandemic (COVID-19) continues to spread. Already we have seen unprecedented government-imposed restrictions on bars, restaurants, retail stores, gyms, and other business operations. These rampant disruptions have forced many employers to lay off their workforces or shutter operations altogether. Given this current state of affairs, many businesses will be closely scrutinizing the terms of their agreements hoping to find some relief.
Often, business agreements will include some type of Force Majeure clause that excuses a party from performing its obligations under the agreement if circumstances arise that were beyond the reasonable control of that party. In simpler terms, a Force Majeure event is one that is neither anticipated nor controllable by any party to an agreement. Some Force Majeure clauses are triggered by specific events, such as a flood, earthquake, tornado, or even a war. On the other hand, some clauses contain broad terminology that excuses performance if, for example, there is an “Act of God”. Regardless, there must be a link between a Force Majeure event and a party’s inability to perform. Keep in mind as well that many Force Majeure clauses include provisions requiring advance notice and stating the anticipated time period for which contract relief is being sought. It is very important to review these clauses now if you anticipate your business may not be able to perform.
It remains unclear whether a pandemic constitutes a Force Majeure event if it is not expressly included in a Force Majeure clause. If, however, a Force Majeure clause makes use of broad terminology such as “Act of God”, it is arguable that a business disruption caused by COVID-19 could qualify as a Force Majeure event. Because every Force Majeure clause is different, courts will look to the specific language of such a clause to determine its applicability to a particular set of facts. In the absence of a Force Majeure clause, a business may still be able to seek relief through the common law doctrines of impracticability and impossibility, both of which are mechanisms for parties to avoid contractual obligations when circumstances arise that would make performance either impracticable or impossible.
As more and more businesses are forced to drastically alter their operations due to the spread of COVID-19, now is the time to evaluate whether your business can mitigate potential damages by invoking Force Majeure or through other avenues.
The attorneys at McCarthy Lebit remain available to discuss any questions or needs that your business may have. We are continuing to stay apprised of COVID-19 developments and will continue to update our materials accordingly.
