Force Majeure Clauses
Bet you never read one until now…
Force majeure clause. It’s one of those boilerplate paragraphs that no one reads until, you know… now. It’s one of the first things I was asked, as an attorney, about the pandemic and contractual obligations on a contract.
A force majeure clause (“force majeure” is French for “superior force”) it is a contractual provision that excuses performance in the event of extraordinary, unforeseeable, and unavoidable circumstances which prevents one or both parties from meeting obligations defined in a contract. It serves to excuse parties from contractual duties due to forces beyond their control. Generally, it accounts for natural disasters, social unrest, etc.
At the moment, there are arguments on the classification of COVID-19 as a force majeure event; however, this is difficult to define. What is important to note is that this novel virus has changed workplace dynamics globally. Travel bans, curfews, and quarantines have forced millions of employees all over the world to work remotely.
Force Majeure and COVID-19
In the wake of COVID-19 many companies’ struggle to fulfill their contractual obligations because of supply chain management issues, lockdowns, the need to downsize workforces, and the embargo on travel or the movement of goods across the interstate or international borders. In extreme and unexpected circumstances like these, contractual force majeure clauses might be used to justify voiding contractual obligations, especially when such scenarios are overlooked in the drafting and negotiation process.
Amidst the coronavirus pandemic, many employers are now faced with major disruptions to their business operations. Boardrooms are now forced to make difficult decisions that affect their employees: hiring, layoffs, furloughs, and compensation.
Employers who do not have remote work models are currently being forced to create them. These flexible working policies, which include the use of technology, enable their employees to work from home efficiently. Health concerns in the face of the pandemic make this imperative.
Several of the tough decisions taken by business management will implicate written employment contracts and collective bargaining agreements that contain “force majeure” clauses.
Force Majeure and Remote Work
Lots of employee contracts do not make provisions for remote work. Yet this is a compulsory outcome in the wake of the coronavirus. What’s more interesting is the definition of what a force majeure event is at the moment.
A lot of force majeure clauses are not expressly clear on terms like “pandemics,” “epidemics,” or “quarantines” as events that might trigger said clause. Yet in some quarters, a natural disaster may qualify as an “act of God” that is beyond the control of the party in question. The question then remains if COVID-19 can be defined as an “act of God.” Interpreting the terms of the force majeure clause in this context is tricky and will have a lot of grey areas. For instance, justifying loss or using reasonable efforts to continue to execute the terms of a contract may include allowing employees to work from home or the facility to provide services remotely. In the event that the contract can be performed remotely, this option may prevent the force majeure clause from being activated
A little foresight can help you through some tough scenarios. Boilerplate clauses are not there for the sake of beefing up a contract. While many do have standard language, they are just as important, if not more than any other term of a contract. Make sure you review them properly.