Employers the world over are trying to measure the impact of COVID-19 on business operations. Many businesses have ceased operations to help combat the virus, but these measures are unsustainable. Temporary closings are turning permanent, cash-on-hand to pay quarantined employees is dwindling and business contracts are going unfulfilled. Many company attorneys have begun to explore creative legal avenues for relief. Some may attempt to legally frame the coronavirus pandemic as an “act of God” and activate the force majeure clauses of their contracts.
If so, a court may decide if a virus, specifically the novel coronavirus, is an act of God. How might that work with traditional force majeure clauses?
What is a force majeure clause?
When included in a contract, a force majeure clause excuses one party from performing the contracted duties if an act of God makes those duties impossible. Most of these clauses specify extraordinary circumstances like fires, hurricanes or tornados. Some clauses include human events like war, strikes and loss of power too. Force majeure clauses are, by necessity, very specific – very few list pandemics.
Many business contracts today are heavily impacted by COVID-19. Construction projects are on hold, independent contractors are nearing their deadlines and insurance companies are fearing total bankruptcy due to coronavirus-related payout projections. These businesses may have no other option but to defend their potential contract default cases in court. After all, the penalties incurred from defaulting on these contracts could bankrupt entire industries. These businesses stand a better chance trying their case in a courtroom.
Seek a creative legal defense
The legal language of force majeure leaves little room for interpretation, listing exact events that constitute an act of God. If a contract fails to specify an event that ultimately prevents the fulfillment of a contract, the parties in breach may have to defend a liability claim through common law doctrines of “frustration of purpose” or “impracticability.” These doctrines have a narrow application, but an attorney experienced with contract law may find success with a creative legal argument.