Updated: Jul 15, 2020
Have contracts been canceled? Is your business obligated to certain contracts that cannot be performed? How does my business protect itself in contracts? Is your business’ premises open to the public? Are your employees required to physically work on your premises?
There are several considerations that businesses now have to take into account as we all navigate this new norm of a global pandemic known as COVID-19, a highly contagious illness caused by a virus that is transmitted from person-to-person. (Center for Disease Control, 2020). COVID-19 has adversely affected many US based businesses especially small businesses. According to a weekly survey conducted by the US Census Bureau in May 2020, 51.4% of small business respondents across various industries advised that their businesses had been negatively impacted by COVID-19 with an expectation that it would take more than six months for their businesses to recover. (Callen, 2020).
For many businesses, contracts are of significant importance as the contracts not only spell out the rights and obligations of each party……….but the contracts should also specify the conditions for terminating a contract as well as the available remedies in the event of a breach of contract by either of the parties for failure to perform its obligations thereof. As we continue to navigate COVID-19, businesses will become heavily reliant upon the terms of their contracts. Businesses that are unable to meet certain contractual obligations should discuss with legal counsel its options for terminating the contract to avoid or minimize liability. While impossibility of performance or frustration of purpose are valid legal defenses, these are simply that…….just defenses. This means that a lawsuit has already ensued, and that your business now has to defend itself in a civil lawsuit with the potential for a lengthy court process and substantial legal fees. Accordingly, it is always best practice to engage legal counsel as soon as possible to mitigate the potential for civil action.
Another option for businesses is to renegotiate the terms of its contracts through an amendment to add and/or modify a Force Majeure clause to avoid liability for failure to perform its obligations under the contract. A Force Majeure clause is a clause releasing parties from liability for failure to perform its obligations due to certain extraordinary events outside the control of the breaching party. Like other provisions in a contract, words matter. As most people never ascertained a global pandemic such as COVID-19, it is highly probably that certain verbiage referencing a pandemic is not included in a Force Majeure clause. Typically, a Force Majeure event is defined in contracts as acts of God, wars, strikes, riots, and crime but many do not include the term, “pandemic.” Arguably, one could say that a pandemic is an act of God but that is arguable, not definitive. Accordingly, it would behoove businesses to modify their contracts through an amendment to either add and/or modify its Force Majeure clause to include a definitive list of certain events including a pandemic that affords each party a means of avoiding liability for breach of contract for extraordinary events outside of a breaching party’s control.
Lastly, for businesses whose premises are open to the public and/or require their employees to physically report to its premises, the issue of liability is a substantial one. Here, businesses should be concerned that they will be sued in the event that a third party, including its customers and/or employees, contracts COVID-19 on its premises. While Congress is considering legislation barring third parties from being able to be sue businesses as a result of contracting COVID-19, such legislation has not been passed and negligence is always at issue. Negligence is defined as failure to exercise reasonable care for a duty owed to another party to which a harm has been suffered. For businesses, it is imperative that they diligently put into place certain policies and procedures that mitigate risk of exposure to third parties on its premises. And while it appears that more businesses now have written policies, it is recommended that businesses retain legal counsel to review such policies and develop a risk assessment for the business to mitigate potential legal exposure to COVID-19 lawsuits. Moreover, having a policy in writing is a start but is simply not enough as the diligent practice of effectively carrying out these policies and procedures will be integral in shielding itself from and defending itself in potential lawsuits.
Please contact one of our trusted and experienced attorneys at Peace & Squires Law so that we can help your business navigate COVID-19 from a legal perspective. We are here to help, and look forward to sharing our experience and knowledge with you as we work diligently to produce smart and sensible legal solutions for your needs.