In light of the current coronavirus (“COVID-19”) state of emergency, many companies may be experiencing a significant business disruption or even forced into a potential breach of contract situation because of government mandates, labor shortages due to company quarantine policies, or other related matters. Thus, businesses should proactively review all relevant agreements and identify if these agreements include a force majeure clause and more importantly, if a force majeure clause is present what events are covered.
A force majeure is defined as, “[a]n event or effect that can be neither anticipated nor controlled. The term includes both acts of nature (e.g. floods and hurricanes) and acts of people (e.g. riots, strikes, and wars).” The question presented for many companies is, will the current spread of the COVID-19 virus be considered a force majeure event? To answer these questions, companies must identify what is defined as a force majeure event in the agreement. Typically, the event or circumstance must not be within the party’s control, unforeseeable at the time the agreement was executed, the event makes performance impossible, and the event is clearly defined within the scope of the force majeure clause.
Clearly, the spread of COVID-19 within the past few weeks and the following government imposed restrictions were unforeseeable and outside the control of businesses. Likely, these events should fall under the definition of force majeure. The next step is confirming that performance may be delayed or impossible and if applicable, whether the force majeure clause in the agreement covers such an event. The analysis is two-fold; are epidemics, pandemics, and quarantines covered by the force majeure clause, and if not, can the force majeure clause capture governmental or regulatory restrictions in response to the COVID-19 epidemic. In any event, companies must respond to limit any business and operational disruptions.
With this in mind, many courts narrowly interrupt these clauses, so it is in the company’s best interest to have these documents and clauses reviewed by legal counsel. This is where the team at Quinlivan & Hughes can help. We have experienced corporate attorneys who are able to assist in the event your company is unable to fully or partially perform obligations, or if your company is experiencing vendor delays or nonperformance due to the COVID-19 epidemic. Our team is ready to review your agreements, identify if there is a force majeure clause in place, and if not seek other alternatives to solve the matter.
Additionally, our business law team is ready to draft a force majeure clause that can be narrowly tailored to your industry so that your company is protected in the event of unforeseeable circumstances that may delay or make impossible performance of contractual obligations.
Established more than 95 years ago, Quinlivan & Hughes ranks among the oldest and largest law practices in Central Minnesota. The full-service law firm has growing legal teams in the areas of employment law, business law, government law, insurance defense, trust and estate planning, and general litigation. Learn more at Quinlivan.com.