Force Majeure 101

Bonus Episode on the Business Bites Podcast

The Gist Of This Episode:Many of you are completely freaked out right now about contracts and the scary sounding Force Majeure clause. Breathe! This quick episode walks you through five major evaluation steps to know your legal position and provides tips on how you can be protected for the future!

 

What you will learn:

  • What a force majeure clause is
  • How to evaluate your own
  • When does this clause apply
  • How to use this clause
  • What to do if you don’t have one
  • and more!

Expand To Read Episode Transcripts

Rachel Brenke:
Hey guys, guess what? This is Rachel Brenke from the Business Bites Podcast, and my podcast manager is on vacation this week, so I decided to go a little renegade and do whatever I want because obviously my team is amazing. They are the true bosses that keep me on task, but I have an episode that is timely for right now. I don’t want to wait. I don’t want to shuffle guests, so I’m just going to jump right into talking about force majeure clauses in your business agreements that you have. Understand that I’m doing this now because of Coronavirus, but it’s going to apply in the future. I did talk about this in another episode and I’m going to link all of that at rachelbrenke.com/epifm, okay? So epifm since this is a bonus, it does not have a episode number.

Understand, I already said it before, I’m going to say it again. This is information you need to have even when we’re out of corona, when we have disasters or anything else in the future that can impact your business. So understand that one of the top questions that I have been receiving from many of you, which is why we are here today is that so many things are being canceled or postponed due to the Coronavirus pandemic. And the look at it, even restaurants, the supply chain of getting stuff out the door and you small business owners are also feeling the crunch. And so this is leading many businesses to ask about contractual force majeure clauses. So here we’re going to go over the top questions that you guys have asked.

But before we can do any analysis on this, you have to realize that you A, need to have a contract first. If you don’t have one, I have all sorts of episodes that talk about why, but you also want to look in your contract to see if you have these force majeure clauses. These are clauses that allow or excuse non-performance in the case of certain situations, which is why we are going to look specifically into your contract because there is no single standard force majeure clause. So this is why it’s hard when you guys reach out in the Facebook group for Business Bites, just search it if you’re not already in there, awesome community, or you’re pinging me on Instagram saying, “Does my force majeure clause apply during COVID?” I can’t tell you because I don’t know what it says. You would have to show me. We’d have to identify it.

And another thing to consider is just because your business may include force majeure clauses in the contracts, it doesn’t necessarily mean that it’s going to be the same as someone next door and it doesn’t necessarily mean that it’s going to apply in this situation. So while the force majeure clause may be found in a “standard” terms and conditions of a contract, they are also part of negotiation and variation depending on who drafted the document.

Side note here, I’ve talked about the need for having contracts before and I’ve specifically talked against you guys self drafting your contracts. I’m going to link that episode on this show notes page. So again, rachelbrenke.com/epifm, because there are very key things that I look for when someone comes to me with a contract issue or to review a contract and you can tell if it has been self-drafted in many ways but one of the things is because it is not having a proper cancellation or some sort of excuse and non-performance or repercussions to that including a force majeure clause which you guys now know what it is. So if you are negotiating your own contracts, if you’re drafting your own, you’re probably in a bad position, now is a great time for you guys to get this adjusted.

Side note, shameless plug. My firm, we have a nationwide network of attorneys that work for us and so we have got licensures on all different states and we had been bombarded because this has been a huge wake up call for many of you. Either you didn’t have a contract or you had a really poorly written contract or you just needed to know what the force majeure clause meant and if it applies and how to work through that. We have been working around the clock to get these answers to you guys because we know that it’s really important because these are your livelihoods, right? And that is what we’re here for. So if you need help, eden-law.com is my law firm and we can help you guys with that. So let’s move on through the podcast in talking about force majeure clauses.

One of the top questions with the force majeure clauses is is Coronavirus an unforeseeable “act of God”? This is not me getting religious. That is a legal term of act that we use. Understand, and I’ve said this already, but I want to just be clear. Force majeure clauses often lists specific items that will qualify under this clause, which will allow for non-performance either by you, your clients, or both of you, okay? This is typically going to include things such as strikes, wars, riots, terrorism, disaster, et cetera, and many of them will also include the “act of God” in the list, which arguably I think would describe a global pandemic.

But case on what does or does not qualify as act of God varies across the country, so make sure that you’re digging into your local state. We can help you do that. So just understand that you can see if it applies or not. And this is important because when you sit down, even if you have a solid force majeure clause right now, you want to take this time to reevaluate it, ask these questions of your attorney to see if each of them, especially the act of God, if it will cover things like pandemic.

Now, one of the key aspects, and this varies based on jurisdiction and this is all going to be dependent on how the clause is drafted, is that most jurisdictions require this “act of God” to be unforeseeable. Here’s the hard part. Foreseeability is often disputed and so suffice it to say whether a force majeure clause that specifically references an act of God, will it apply to Coronavirus cancellation or interruption is going to be all about the language in your contract, the facts and circumstances at the time and the jurisdiction that you’re in. So that’s the outline. I’m giving you guys the keys of the kingdom here, right? That is the outline that we use when we’re, me, attorneys and myself as an attorney, other attorneys that I work with that work for me, that is the outline, initial outline at least, that we take to evaluate whether or not the force majeure clause is going to apply here and then what do those specific terms mean.

If you have a contract that has a force majeure clause that specifically references epidemics or pandemics, then kudos to you. I’ll tell you guys what, I’m on Twitter just to get a lot of interaction more with legal field colleagues and just stay up to date on different things in other industries and stuff that’s going on, and one of the things that I have seen during this Coronavirus is the explosion of lawyers having arguments, go figure, discussing academic disputes over pandemic and over does Coronavirus apply? No one really ever thought we would have a global pandemic. This is literally out of the movie Contagion, right? No one really thought that this would happen. And so don’t freak out just because your contract doesn’t necessarily say pandemic, but if you do, kudos to you. Just know that if it’s not in there, you’re not the only one caught off guard. And I’m not necessarily saying it’s wrong, but you are in a good position if it specifically states that. Just understand that attorneys and the legal industry is also facing their own disputes and discussions over this.

The next step we want to move into is was the performance, whether by you or your client, you have to identify because it can be drafted in favor of one party or the other or for both parties, was the performance made impossible, impractical or illegal? And I’m going to circle back around real quick. A minute ago, I mentioned that we’re going to look at the force majeure clause in light of the current circumstances and facts that are going on because last week, the force majeure clause might not have applied, the next week, it might. And we’re going to talk about that a little bit more here. Different force majeure clauses have different standards to tie the event to this contract performance. And these are most common, I talked about this in the other podcast as well, impossibility, impracticability and illegality.

Now, which of these standards that is in the contract will determine how this force majeure clause is going to apply? Does it specifically say that it’s impossible or does it say it’s impracticable for our party to be able to perform or just does it make it illegal? And actually, in places where we have lockdowns, it can be illegal for you to continue fulfilling a contract and if it is, in it’s identifying the force majeure clause, you’d be able to invoke that, right? We also talked about impossibility in the context if you’re supposed to go out and do services for a client and maybe that event venue is closed down, will it be impossible for you to be able to do that? So just consider it. That’s the kind of analysis that you want to look at. We want to see if there’s a clause, what are the specific items, interpret those items and then was there a trigger? Is there an impossible, impractical or illegal?

Next step is that we want to look at does your clause have a catchall provision? Because many clauses not only list the events like we’ve talked about, but it may have this catchall of like any other event beyond the reasonable control of a party that’s kind of reasonable control reasonable. Side note, it was so hard for me to wrap my head around this in law school because it was like reasonable, reasonable could be a standard that is different for everyone and it really kind of is. But it’s you got to start training your brain and you’re looking at these agreements and understanding how they work and fulfilling them to know that often the standard is going to be did you provide reasonableness and this reasonable control?

And so just understand that if you want to look here to see, depending on the facts and circumstances, are you in lockdown? Are you in shelter in place or are we just simply, two months ago, this is now May 5th when I’m recording this, but two months ago when we didn’t have any of this in place, we had no government directives, was it under my reasonable control that I could still fulfill my services to a client? Yes, more than likely, right? Now is it reasonable? No. Why? Well, it be impossible for me to go out and maybe photograph a wedding because A, we’re not allowed to have weddings and also the venue was closed, right? So that is what you want, how you want to evaluate this and reasonable control.

Aha! The next one, and I’m glad I jotted this down because while I often as an attorney think about this, lot of times, and not even just as an attorney, just as a good business person, right? As good business people, we should be keeping our clients reasonably notified, reasonable communication, take the reasonable steps. But definitely communication, and I’ve talked about this in other episodes, is that communication is key. Communication can eliminate or greatly assist in repairing any sort of issues that you have with your clients, and miscommunication is one of the top reasons that we end up in C litigation, especially when it comes to contracts.

So in this, was there notice required and did you properly give it? So you know you have this clause in here, you evaluated it based on… No, hopefully you didn’t. Your attorney did give you the go ahead. This is just educational information for you guys to have. I’m not encouraging you to go to evaluate it on your own and rely on that as legal advice. I’m wanting you to understand what goes into this and also how to apply what is recommended to you by your attorney. But here, does it require you to give notice? Did it require you to reach out to your clients because you have this in your contract? And again, clauses vary in their terms and so they’re also going to vary in the notice requirements. Some require notice within a certain timeframe in the occurrence, whereas some only require prompt or reasonably prompt notice. So check for that. Give it a little circle in your contract.

In the context of Corona right now, one important consideration for any notice provision will be when the “event” of force majeure occurred. Was it when the World Health Organization declared the Coronavirus outbreak a pandemic? Was it when the travel ban happened? Was it when local city regulation acted? This is something that is this right here. I know this is super vague and this is what is going to be throwing a lot of people into a tizzy as we continue on with this, and I know many states are starting to open up, but who’s to say we don’t end up back in this position again? And hopefully we don’t. And some of you guys are still sitting in places where you’re not able to fulfill contracts and so you still have questions on force majeure. Make sure you’ve done the notice.

Now, understand, and this is more of a legal application thing, force majeure clauses are generally construed narrowly, but this Coronavirus pandemic is unprecedented. In our recent history, in our recent years, everyone is in a tizzy, so don’t freak out if you’re like, “Oh my gosh, I don’t know how this works.” I’m going to give you a quick little summary of what we just talked about. Look for your force majeure clause. Look to see what events it lists. Did it require the performance to be made impossible, impractical or illegal or some variation of language? Is there a catchall provision? If the pandemic may not necessarily fall in in those specific items, is there a catchall that Coronavirus or any other disaster or event that comes along in the future can fall into? Was there or is there any extra requirement and did you properly give it?

And then the biggest thing in all of this and understand is knowing your legal position puts you worlds ahead of other business owners. That’s why kudos to you guys for listening to this podcast, reaching out to law firms, getting your contracts evaluated because that is just the first part of it. Really at the end of the day, we’re all human beings. So know where your legal position is and then you can do more. You can either stick to exactly what your contract says or you can do more.

For example, one of the biggest questions that we’ve received is like in the context of weddings, right? A lot of wedding vendors have reached out to us. We work with a lot of creatives and in the wedding industry, and those events, it’s been impossibly able to fulfill them, but some vendors don’t necessarily, even though they legally could keep the initial deposit or a retainer that the client made and they are able under the force majeure clause to just both walk away from the contract and then require the client, the vendor can require the client to pay another new non-refundable retainer fee and that’s okay. If that’s what you want to do, you want to do it, but you do have the flexibility more than likely to have that client since there’ll be a new agreement in the future or have that client pay for it, pay that again, or not pay it again.

And that is totally up to you. Just know where your legal position is. You can provide customer service, you can make a plan that is also going to cross over into client retention, client satisfaction in branding and marketing overall because how you guys respond in the Coronavirus pandemic is really going to ripple with your clients. And who do they recommend when their friends come to them? The people that reached out, provided reasonable communication, they provide a good customer service and we’re a human being at the end of the day.

A lot of information. I talk really fast. Totally understand that. Again, these show notes, transcripts and everything, you’re going to be at rachelbrenke.com/epifm. I’m going to get the thread going also in the Business Bites Facebook group, so you guys can jump in there to ask questions. As always, you can always reach out to me. And as a reminder, we are still taking all virtual phone calls and evaluations of contracts, et cetera, especially for force majeure or new contract drafting, eden-law.com. If you have any questions at all, we are here for you.

About the author

Rachel Brenke is a lawyer, author and business consultant. She is currently helping professionals all over the world initiate, strategize and implement strategic business and marketing plans through various mediums of consulting resources and legal direction.

Hi, I’m Rachel Brenke

Rachel Brenke

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