Whether you’re looking at a commercial lease agreement, product delivery schedule, or manufacturing timeline, COVID-19 has probably disrupted your Philadelphia area business operations in one way or another.
What do you do when the disruptions caused by the novel coronavirus are so major that they fundamentally change your ability to perform on a contract? Is there any way to get out of your contract without being on the hook for the other party’s damages?
Enter force majeure, which means “major force” in French.
Force majeure describes an outside event or circumstance that makes the terms of your contract practically impossible to perform. Many contracts have a force majeure clause that excuses failures or delays in performance.
If your contract doesn’t include a force majeure clause, you can still be excused out of your obligations by arguing impossibility, impracticability, or frustration of purpose.
This is our fourth post in our COVID-19 series, where we discuss the challenges businesses face in a dramatically shifting economic landscape. You can also read about:
- Do you need a coronavirus liability waiver for your business?
- What cancellation and rescheduling policies does your business need for COVID-19?
- How can you terminate your commercial lease in a COVID-19 world?
If you have concerns about what COVID-19 means for your tristate area company, call our Philadelphia-based business law firm today at 215-482-0285.
COVID-19 and Force Majeure Clauses
Depending on where your business operates in the Philadelphia area, you’ve had to keep up with an ever-shifting patchwork of state and local laws passed in response to the pandemic.
Not only are the many changing business requirements difficult to follow, but they’re also out of your control. You may no longer use the beautiful new office space that you just signed. If your business is in person, your ability to earn income may be frozen while your rent comes due. If you’re in manufacturing, your supply chain may have dried up or skyrocketed in price. If you work in the event industry, your schedule might be completely erased.
Force majeure clauses usually contain language referring to “acts of God” that interrupt your ability to fulfill your side of the contract. Some causes remain vague, without stating what those circumstances might look like. Other force majeure clauses go into much more detail about what they cover and include a list of catastrophic events.
Your force majeure clause may cover fires, flooding, storms or other extreme weather, coup or revolution, acts of mass violence, riots or war, civil upheaval (but not labor strikes), and any other event “beyond the reasonable control” of either party to the contract. If a force majeure event occurs, your clause might specify whether you can:
- Cancel your contract,
- Be excused from performance in whole or in part, or
- Suspend contract performance and ask for an extension.
Force majeure language referring to pandemics and outbreaks of disease tends to be rare, although that’s likely to change now with the effect of coronavirus on the world.
Will Your Force Majeure Clause Cover COVID-19?
That depends. If pandemics or disease outbreaks are covered under your force majeure clause, then you’re in luck. But if your clause doesn’t mention pandemics, the language would get reviewed by a judge whose interpretation is based on the laws in their local jurisdiction.
The more detailed and specific your force majeure clause, the more likely it is to be interpreted narrowly to cover only the events listed. For example, if your clause mentions ten different types of catastrophic events but leaves out pandemics, it may not apply to COVID after all.
On the other hand, the vaguer your force majeure language, the more broadly a court will interpret it in court. Does COVID-19 classify as an “act of God” beyond human control? Certainly, none of us a year ago could have reasonably predicted where the world is now. At this time, the pandemic is still too new for a court to have ruled on this question.
To successfully get out of a contract under force majeure, you must show that:
- The triggering event qualifies as a force majeure under your contract,
- The event causes your contractual obligations to be delayed or prevented, and
- You’re unable to overcome the force majeure event despite making a reasonable effort.
Unforeseen circumstances that simply make performance difficult or more expensive than expected do not fall under force majeure. If you wonder about the outcome of your case, that would depend on the specific facts of your situation.
- A company facing mandatory lockdown is more likely to win under a force majeure argument than one who voluntarily sends home their workforce.
- A company where the entire operation has been forced to pause will likely be more successful than one who can still operate at a lesser capacity.
An experienced local business lawyer can help you analyze the facts of your case and make the best argument for your company moving forward.
Impossibility, Impracticability, or Frustration of Purpose
If you have no contract or your contract doesn’t have a force majeure clause, you can argue impossibility, impracticability, or frustration of purpose to get out of your obligations. Both Pennsylvania and New Jersey courts recognize these doctrines.
Impossibility or Impracticability
Under common law, if your contract becomes impossible for you to perform, you can’t be held liable for breaching its terms. For example, it might be impossible for a dancer who suffers a broken leg to perform at the date and time specified in their contract.
Depending on your local government’s response to the pandemic, shutdown orders could actually make it impossible for some companies to do business. A local theater might be unable to operate their venue at any capacity under social distancing ordinances.
Under impracticability, you can argue that the terms of your contract have become “excessively burdensome” because of a supervening event that is:
- Unforeseeable (but not inconceivable),
- Not the fault of the party asking to be excused from performance,
- Contrary to both parties’ assumptions at the time of creating the contract, and
- Not something a reasonable party would’ve protected against in the contract.
A local business law attorney can look at the terms of your contract and help you determine what you can expect based on these arguments.
Frustration of Purpose
What if you can technically complete your contract but the terms have become meaningless?
Consider a company that contracts to clean an event venue that’s shut down during COVID-19. Technically, the contractor can still come and clean the venue. But the reason the cleaners were hired to begin with no longer applies since events are canceled.
In this case, a superseding event frustrates the purpose of the contract. Completing the contract in its original terms would be worthless.
At Holmes Business Law, our Philadelphia area attorneys are dedicated to helping businesses not just survive but thrive in a post-COVID world. We can help you understand your contract options and choose the best strategy to meet your goals.
We know you’ve worked hard to build your business to where it is today. The best way for your company to get through the coronavirus pandemic is with the support and guidance of a legal expert.
Call our business law firm today at 215-482-0285 for a consultation.