- The law is evolving whether companies can invoke a force majeure clause concerning COVID-19.
- The law is very fact-sensitive, case-sensitive, and turns on state-law precedent.
- Consult an attorney whether to invoke a force majeure clause if you need to break a contract, and consult an attorney whether it is worth pursuing a judgment against a party that invokes the same.
Legal definition and examples.
Most seasoned attorneys – and business owners – recognize that all contracts contain certain “boilerplate” language toward the end of the document. These repetitive clauses, in various degrees of legalese, address jurisdiction, amendments, and, of increasing curiosity these days, how the parties should proceed in the event where performance is presumably impossible.
These force majeure clauses (find pronunciation here) are easy to implement when there is a natural disaster where the impact is visible and real: earthquakes, hurricanes, strikes, and changes in laws making fulling the contract illegal. It is more difficult to assess whether an invisible pandemic is equally a trigger. Force majeure means “a superior force,” and in the legal definition sense, it seeks to void legal liability in the event of a catastrophe. Many business owners are wondering if this clause waives payment obligations, insurance policies or other issues that may be governed by contracts.
ContractsCounsel understands that you may be concerned to what extent force majeure clauses impact your contracts, whether you’re trying to keep them in tact or trying to break them without penalty. As COVID-19 spreads across the country so too are business owners looking to the judicial system to learn to what extent this pandemic relieves them of or enforces their contractual duties in regards to payment obligations, insurance policies, etc. But here’s what we know now.
As a first step, review the language in your contract. Most force majeure clauses include certain examples of what constitutes a triggering event, such as an Act of God, terrorism, and war. This is what’s called a “closed list,” and follows a well-established legal precedent and case law that the inclusion of one thing excludes all others. Courts construe them narrowly. In other words, for COVID-19 to be applicable, the force majeure clause must contain words like quarantine, lockdown, epidemic, or pandemic.
One possible work-around situation is if the force majeure clause references government action. If your place of business is located in a state or county where the government mandated that the business shut down, then it is likely that COVID-19 would be included because it would be unlawful for you to continue to engage in commerce, thereby making performance impossible.
Each state is different.
Contracts are generally governed by common law and state law. Each state has precedent and case law to what extent a certain event might invoke a force majeure clause. For example, in Texas, a party invoking this clause is under no obligation to try to mitigate its failure to perform to overcome the act that triggered the clause. To put it another way, a small business need not try to “fix” their business model to accommodate a catastrophic event. The opposite is true in New York where the breaching party must show an attempt to perform under the contract in spite of the event.
Erroneously invoking force majeure clauses.
If a court finds that a party erroneously invoked a force majeure clause and ceased performing under the contract that party might be in breach and subject to money damages or specific performance. Caution and counsel are advised.
Caution is also advised for the non-breaching party in seeking a judicial remedy. In these times of uncertainty, many small businesses might be forced to close their doors permanently, making them effectively judgment-proof. Even if the winning party is correct that their counterpart erroneously invoked this clause, an order awarding monetary relief might only be worth as much as the paper it’s printed on.
The law is evolving, but at present it appears that a business claiming that COVID-19 falls under a force majeure clause will likely have a strong argument based on precedent and case law because of the unforeseen nature of event. Nevertheless, whether there was an attempt to continue to perform under the contract (such as conducting work remotely) and whether that is even a requirement under the contract must be evaluated on a case-by-case basis.
Meet some of our Lawyers
30+ years as a practicing attorney in Colorado. Real Estate law, entity formation, business acquisitions and real estate development representing sellers and buyers
Experienced attorney focusing on estate planning, probate administration, business formation and counseling, and consumer bankruptcy.
I focus my practice on startups and small to mid-size businesses, because they have unique needs that mid-size and large law firms aren't well-equipped to service. In addition to practicing law, I have started and run other businesses, and have an MBA in marketing from Indiana University. I combine my business experience with my legal expertise, to provide practical advice to my clients. I am licensed in Ohio and California, and I leverage the latest in technology to provide top quality legal services to a nationwide client-base. This enables me to serve my clients in a cost-effective manner that doesn't skimp on personal service.
I am a 1984 graduate of the Benjamin N Cardozo School of Law (Yeshiva University) and have been licensed in New Jersey for over 35 years. I have extensive experience in negotiating real estate, business contracts, and loan agreements. Depending on your needs I can work remotely or face-to-face. I offer prompt and courteous service and can tailor a contract and process to meet your needs.
Tim advises small businesses, entrepreneurs, and start-ups on a wide range of legal matters. He has experience with company formation and restructuring, capital and equity planning, tax planning and tax controversy, contract drafting, and employment law issues. His clients range from side gig sole proprietors to companies recognized by Inc. magazine.
For over thirty (30) years, Mr. Langley has developed a diverse general business and commercial litigation practice advising clients on day-to-day business and legal matters, as well as handling lawsuits and arbitrations across Texas and in various other states across the country. Mr. Langley has handled commercial matters including employment law, commercial collections, real estate matters, energy litigation, construction, general litigation, arbitrations, defamation actions, misappropriation of trade secrets, usury, consumer credit, commercial credit, lender liability, accounting malpractice, legal malpractice, and appellate practice in state and federal courts. (Online bio at www.curtmlangley.com).
Real Estate and Business lawyer.
Davis founded DLO in 2010 after nearly a decade of practicing in the corporate department of a larger law firm. Armed with this experience and knowledge of legal solutions used by large entities, Davis set out to bring the same level of service to smaller organizations and individuals. The mission was three-fold: provide top-notch legal work, charge fair prices for it, and never stop evolving to meet the changing needs of clients. Ten years and more than 1000 clients later, Davis is proud of the assistance DLO provides for companies large and small, and the expanding service they now offer for individuals and families.
Braden Perry is a corporate governance, regulatory and government investigations attorney with Kennyhertz Perry, LLC. Mr. Perry has the unique tripartite experience of a white-collar criminal defense and government compliance, investigations, and litigation attorney at a national law firm; a senior enforcement attorney at a federal regulatory agency; and the Chief Compliance Officer/Chief Regulatory Attorney of a global financial institution. Mr. Perry has extensive experience advising clients in federal inquiries and investigations, particularly in enforcement matters involving technological issues. He couples his technical knowledge and experience defending clients in front of federal agencies with a broad-based understanding of compliance from an institutional and regulatory perspective.
William L Foster has been practicing law since 2006 as an attorney associate for a large litigation firm in Denver, Colorado. His experience includes drafting business contracts, organizational filings, and settlement agreements.