Do I Still Need to Honor My Contracts in The Time Of COVID-19?

Do I Still Need to Honor My Contracts in The Time Of COVID-19?

| Mar 27, 2020 | Employment Contracts |

If COVID-19 has thrown a wrench in your business’ operations, you’re not alone. Across the country, businesses have had to determine whether they can still perform under their pre-existing contracts, or whether there is some way to be freed from their obligations.

If your contract contains a “force majeure” clause, this might be your best option. Latin for “superior force,” force majeure clauses excuses non-performance in the event of extraordinary unexpected events such as wars, plagues, or natural disasters (sometimes referred to as “acts of God”).

Whether you can use COVID-19 to invoke a force majeure clause will depend on the exact wording of the contract. While generic language that excuses performance in the event of an “act of God” would be insufficient,” you may be able to invoke the clause if it explicitly mentions epidemics or public health crises. Similarly, you might be able to invoke a force majeure clause that references “acts of governmental authorities” if your business has been affected by a government ordered shutdown. However, even if COVID-19 falls within the purview of your force majeure clause, you still need to satisfy a few requirements:

  • Performance needs to be rendered effectively impossible. Mere financial hardship isn’t enough.
  • You must mitigate any foreseeable risk of nonperformance

If your contract doesn’t have a force majeure clause, you might still be able to avoid performance in one of the following ways:

  • Impracticability or Impossibility: You might be excused from performance if COVID-19 has rendered it impossible or impracticable to perform.
  • Frustration of Purpose: If COVID-19 has changed your circumstances so much that performance no longer makes sense, you might be excused.

Keep in mind, these clauses and doctrines are narrowly enforced and require an intensive case-by-case analysis. If you believe that your contractual obligations might be excusable under these doctrines, or if you have any other questions related to employment law, contact us at Thatcher Law Firm at 301-441-1400 www.thatcherlaw.com. Email us at [email protected].