Due to the Coronavirus (COVID-19) pandemic, many businesses are having to deal with force majeure clauses for the first time.
You have probably noticed a section in your contracts title force majeure, but what does that mean? Generally, force majeure means unforeseeable, uncontrollable circumstances that prevent someone from fulfilling a contract. The definition of force majeure, and what is properly considered a force majeure event, varies widely depending on the contract so it will be important to review your particular contract. When one of these events occurs, the force majeure clause will typically provide some sort of remedy such as extending the time to perform or releasing someone from a contract.
The following are some things to consider at this time:
- Qualifying Event: Covid-19 is a pandemic according to the World Health Organization – does your clause cover pandemics in the definition?
- Notice Requirements: even if you are certain that Covid-19 qualifies as a force majeure event, you may have to give notice. Many force majeure clauses require the party intending to rely on the clause to provide the other party written notice. Often there is a time limit for the notice. Be certain you have documented this requirement.
- Mitigation/Reasonable Steps: many clauses require the party relying on force majeure to show that it took reasonable steps to minimize or avoid the event. While the steps may seem obvious now, in the coming weeks and months people will quickly forget what was done and why. Be sure you keep accurate records of everything you are doing and why it is being done.
- Other Requirements: some clauses have other requirements in addition to notice. Though less common, some clauses require a party to seek alternate methods of performance or take some other action. Be sure about your obligations.
- Material: should there be a dispute over the force majeure clause, there could be a dispute about whether the event was “material” to your business. Be sure to accurately track the impact Covid-19 has on your business so you can prove the disruption was material.
- Legal Orders: be sure you understand the impact of things like the Safer-at-Home issued by the State of Wisconsin. Though the Order is broadly characterized as one that closes down businesses, there are a wide variety of exemptions. If you are one of the exempted businesses (i.e. essential) then you may have added trouble relying on the force majeure clause and may need to take further steps to prove the inability to perform the contract.
- Communicate: maybe most important of all is communicate with the other party early and often regarding the contract. Many disputes can be avoided with open communication.
Please feel free to contact us if you have any questions.