Protecting Your Business Legally During the Coronavirus Outbreak
Disclaimer: The following is not legal advice. It is educational information to help you understand different ways to navigate business relationships during the coronavirus crisis. For legal advice about your specific circumstances, you should consult a licensed attorney in your state.
It’s already been a month since the Department of Health and Human Services (HHD) declared a public health emergency because of the COVID-19, also known as the coronavirus. In our global community, with every day that passes thousands of new cases are being reported. Federal and state governments are grappling with how to slow the spread of this novel disease. Many states and businesses are instituting measure to protect public health. Some are closing schools, restaurants, bars, and malls.
These measures have begun to have a ripple effect on markets and have led to tougher travel restrictions. Supply chain disruptions are touching businesses all over the globe. Businesses are rethinking travel, canceling long-planned meetings, and conventions.
It’s uncertain how long the COVID-19 will disrupt everyday life. Even though economic considerations come second to protecting human life, they shouldn’t be ignored. The world just changed dramatically—in what feels like—overnight.
Your Business Contracts
Business owners around the nation are understandably worried about their businesses, particularly their contracts.
Now, the world is talking about a legal term, “force majeure”, that may be invoked in many business relationships. However, force majeure is not the only legal protection potentially available in this emergency, and it also may not apply in many situations.
Whether or not the coronavirus is impacting your ability to perform your obligations in your business relationships, it is important that every business owner take some time to get up to speed on these important legal concepts amidst the new challenges we are now facing.
What is a Force Majeure?
Simply put, a force majeure clause means that a party can be relieved from their contractual obligation if there is an “act of God.” Every contract should have a force majeure clause. With the current international pandemic, the COVID-19 has been at top of mind for many businesses.
Can COVID-19 relieve me of my contractual duty? Some parties think that COVID-19 is an unforeseeable epidemic that can excuse them from their obligations under contract.
The answer is more complicated. Whether COVID-19 can relieve a party of their contractual duties, well, depends. However unfortunate, the COVID-19 itself doesn’t just forgive a party from performing their contractual duty. There are circumstances where the force majeure clause could relieve a party from performing its obligation, but many factors come into play.
Wording of the clause
For one, the way the clause is worded is important. These terms can provide for certain circumstances that make performance beyond the party’s control, like being commercially impracticable, illegal, or impossible. It’s important to account for these potential circumstances within the force majeure clause.
Relationship between event and performance
Another factor to keep in mind are the circumstances surrounding the event. There must be a relationship between the epidemic and the reason for not performing the agreed upon terms. It cannot simply make your performance inconvenient—like having to juggle your work with kids at home from school—it must make performance impossible.
A force majeure clause isn’t just a “get out of jail free” card. Many courts view force majeure clauses narrowly and will only excuse performance in limited circumstances.
Impracticability and Impossibility
If you just noticed that your contract doesn’t have a force majeure clause, not all hope is lost. There still can be other avenues to excuse performance.
While it’s best practice to have a force majeure clause written, the doctrine of impracticability is a common law defense that can be asserted. It’s more difficult to prove impracticability because it isn’t meant to just excuse a party from non-performance. But let’s say you were importing goods from China to the U.S. and the U.S. issued a partial ban from China due to the Covid-19. It might now be extremely difficult to comply with the previously agreed upon quotas, especially since the agreement was entered into before the ban. In situations like these, the doctrine of impracticability could be used.
The doctrine of impossibility on the other hand is even more difficult to establish. It’s meant to excuse performance only when it becomes impossible for one party to perform their duties, through no fault of their own. What is determined to be “impossible” is from an objective perspective.
Rescheduling and Cancelling
Depending on the way your contract is drafted and the feelings of both parties, it may be simple to agree to reschedule or cancel your contract with your client. However, it is also wise to memorialize these changes through the execution of an addendum or, in some cases, a rescheduling contract or cancellation contract.
A rescheduling contract may enable you to hold onto a retainer payment while the parties spend time choosing a new date. Since no one knows how long this outbreak and its disruption to everyday life will last, this may be a wise option for both parties.
Keep in mind that the language in your initial contract will control what your options are when it comes to rescheduling and keeping your retainer/deposit. It is CRUCIAL that you speak to an attorney licensed in your state to help you determine what your rights are under your contract.
Your Business Relationships
Keep in mind that, like many aspects of business law, these considerations likely go both ways. It’s possible that you may find yourself in a situation where another party to your contract wants to be released from the contract because of the challenges created by coronavirus.
Perhaps, under your contract, you are not legally required to allow them to terminate or pause the contract. Every situation is different, but to the extent possible, it makes good business sense to approach your business relationships with grace, particularly as we all navigate these huge changes to our society together.
For our photographer friends, we have a few resources to help protect your business legally.
Addendum to Photography Contract
Use this rescheduling addendum for photography contracts if:
1. You and your client have agreed to a rescheduled date (for any type of session including a wedding);
2. You KNOW the date and your client has confirmed that date with the venue; and
3. All other terms of your contract will remain the same.
Rescheduling Photography Agreements
Use these templates if:
1. Your client is rescheduling their shoot/event/wedding, but they have NOT YET confirmed a date;
2. You will apply all payments your client has already made to their account; AND
3. You plan to give them a period of time during which they can reschedule with you.
You can state exactly how long your client has to finalize a new date in your agreement, and if they do not choose a date during that time that you are available, their retainer payment will not be returned.
This contract will terminate and replace your previous contract. It also provides a good opportunity to improve and tighten up the contract you had before.
Cancellation of Photography Agreement
Use this template if your client is cancelling, and not rescheduling, their photography session or wedding.
This agreement states that your relationship is ending, your client is forfeiting their retainer, and you both agree not to bring claims against each other.
We’re in this together!
I know the times we are living through are stressful and full of uncertainty. For support and community through this challenging season and throughout your business journey, come join us in my private Facebook community, On Her Way Up.
You got this and, together, we will make it through!