This is an unsettling time.
The Coronavirus pandemic and government quarantine are in full swing. Even if the quarantine were lifted today, the Coronavirus has already created a massive mess that will linger for months, if not years.
The COVID-19 disease is killing people first and then will kill businesses. This is the first of a series of blog posts to help businesses for the legal challenges that lay ahead.
Is your business ready for what comes next?
Be cognizant of the term “force majeure.”
“Force majeure” refers to a provision in contracts that excuse the inability to perform a contract due to a major unforeseeable event. The term comes from the French, meaning “superior force.”
Force majeure provisions usually refer to “Act of God” events (I.e., natural disasters, earthquakes, floods, etc…), but can also include manmade tragedies like warfare or terrorism. Contract non-performance would be excused based on such unforeseeable events.
However, the contract must specify the force majeure events which excuse non-performance. Otherwise, you (or your supplier or insurer) might still be in breach of contract.
Courts look at four factors to excuse non-performance:
- The exact wording of a contract’s force majeure clause
- How unforeseeable was the force majeure event?
- The connection between the force majeure event and the contract’s non-performance
- Was the force majeure severe enough to excuse non-performance?
Let’s consider these.
Contract wording
This will depend on each individual contract. Do your contracts have force majeure clauses in them? Do your suppliers or insurers have it in theirs?
The contract’s force majeure clause might include “pandemic,” but I doubt many prior to the coronavirus outbreak specified a “government-mandated quarantine.”
Many contracts going forward will be written to include both events, but this is new ground for us all – the COVID-19 quarantine.
This event is absolutely unforeseeable. It is completely unprecedented, and impacts all levels of society – buildings, neighborhoods, city, state, national, and international.
This has never happened before.
Even the courts are closed as of the date of this writing (March 23, 2020), and no one knows how long this quarantine will last.
The connection between the COVID-19 quarantine and contract performance
The Coronavirus quarantine has made it difficult, if not impossible, for many businesses to fulfill their contracts. Customers and employees must stay at home. The exception is for “essential businesses”, such as groceries, pharmacies, health care, and transportation.
Everyone else must stay off the street. Business and cash are all coming to a widespread standstill.
The severity of the COVID-19 quarantine for contract performance
This will likely be a highly litigated issue for the upcoming breach of contract litigation (once the courts reopen).
Basically, could the business have found a way to perform the contract even under the quarantine conditions?
As of now, there is no mandatory shelter in place order. People can – and do – still move around. Could the boss have gone into the office alone even if the office had remained closed?
Likewise, many people can work from home.
The businesses which require onsite presence of employees – or customers – will be the most impacted by the quarantine. They will also be the ones that can prove this issue.
But all this depends on what your contracts say about force majeure.
My two-step suggestion:
- find those clauses in your contracts
- Call a lawyer
