As we navigate the historic challenges of COVID-19, with social distancing and other restrictions wreaking havoc on many businesses and our economy at large, the issues surrounding business contracts are front and center. Many are concerned about their business’ ability to fulfill obligations under contracts they have executed, from client service agreements to distribution agreements, from employment agreements to purchase agreements.
As part of our mission to demystify legal ambiguity, we created a FAQs session to help bring clarity to how COVID-19 may affect legal obligations.
What Contractual Provisions Are Related To COVID-19?
One provision that is included in a number of contracts where performance is susceptible to disruption is the force majeure clause. A force majeure clause suspends the obligation to perform under an agreement when something catastrophic affects a party, such as a natural disaster or labor strike.
Does Covid-19 Qualify Under Force Majeure?
COVID-19, and its many impacts, surely qualifies as a force majeure event, having a direct effect on many businesses’ ability to perform. The concept behind the suspension of performance obligations is to allow the force majeure event to subside over the course of a certain specified period – often 60 days – before mandating the party recommence its obligations under the contract.
Many force majeure clauses, such as the ones included in agreements we draft, allow the parties to terminate the agreement if the force majeure event continues beyond the specified period.
Again, COVID-19 and its long-standing restrictions, would likely qualify.
Does Force Majeure Terminate A Contract Due To COVID-19?
This would mean that likely either party could terminate the contract during this time period if a clause such as the one described above had been included in their agreement.
Can You Terminate A Contract Due to COVID-19 Without Force Majeure?
Resorting to the force majeure clause may not be necessary, however. If there is a well-drafted termination provision in a contract, one that allows flexibility to terminate the agreement upon a certain amount of notice (often 30 days), then exercising that right of termination would be easier, require no substantiation and perhaps even be quicker.
The force majeure clause would thus only come into play where parties did not want to terminate the agreement and merely suspend performance, as well as in cases where the agreement is locked in for a specified time period (i.e. a “term”) or otherwise does not allow for a freer termination.
This is why it is important to not simply include a force majeure clause in your contracts but to work through the termination provision to ensure you are afforded the ability to remove yourself from the contract, if needed, upon a simple notice period.
Finding The Right Attorney Matters
While we at Your Contract Lawyer Inc. do not litigate disputes surrounding the enforcement of force majeure clauses or other matters related to the breach or enforcement of agreements, we can work with you to ensure your agreement, as drafted, puts you in the best position to exit the contractual relationship given circumstances outside of your control.
If these challenging times demonstrate anything, it is that life is unpredictable; preparing business contracts in consideration of these uncertainties, while affording options to mitigate the effects of those uncertainties, will go a long way toward protecting your contractual relationships and your businesses themselves.