BUSINESS CONTRACTS POST COVID-19
Small business owners affected by COVID-19 know all too well the importance of written agreements in these uncertain times. What gets included, and what doesn’t, can make or break a small business when the unexpected happens. There are sever strategies you might consider to reduce uncertainty when drafting your own contracts post pandemic.
1.WHAT SHOULD BE INCLUDED IN YOUR BUSINESS CONTRACTS POST COVID-19?
First, evaluate your past contracts to make sure the clauses or provisions that don’t work so well or left your business exposed to unnecessary losses or risks are amended or removed.
Second, consider adding a ‘force majeure” clause (which is explained below) to your contracts going forward. A force majeure clause is a provision in your contract that protects your business from unforeseen issues, like natural disasters that can make it extremely difficult or even impossible to fulfill your contractual promises. The force majeure provision would allow you to back out of a contractual obligation should an extreme and unforeseeable event prevent your from fulfilling your end of the deal. In a post COVID-19 world, you may want to include a force majeure clause that specifically includes issues like pandemics or shutdowns related to the pandemic in your future contracts.
Third, you might consider including an arbitration clause in your future agreements. If you had an issue with a contract and the courts were to shut down again, you could resolve that issue virtually with an arbitrator. Otherwise, you may be stuck waiting for the courts to open in order to resolve a pressing dispute.
Finally, it is really important to get all your agreements in writing. Don’t rely on verbal agreements and a handshake to seal a deal. If it matters to you, then put it in writing and make sure that everyone signing the contract knows what’s in it and actually understands it.
- WHAT ARE SOME CONTRACTUAL DEFENSES YOU CAN USE?
The COVID-19 pandemic has disrupted and will continue to disrupt global, national and local commerce. Businesses in every industry have experienced, and will continue to experience, significant challenges to their ability to meet or enforce contractual obligations. Contractual defenses fall into three primary categories: Impossibility, Frustration of Purpose, and Force Majeure.
The common law often recognizes a defense of impossibility. A party should not be held liable for breaching a contract that they could not perform. For example, hiring Sting to perform but before the performance, Sting dies, making the contract impossible to perform. Some of the government orders surrounding COVID-19 may in fact render performance impossible.
2. Frustration of Purpose
Some courts also recognize a doctrine called “frustration of purpose” which is similar to the impossibility defense. Under this doctrine, performance is excused when a supervening event fundamentally changes the nature of a contract and makes one party’s performance worthless to the other. For example, if a contract called for the cleaning of the theater after Sting had performed, the cancellation of the performance frustrated the purpose of the contract. The contract can still be performed but the purpose has been frustrated making cleaning a wasted effort.
3. Force Majeure Clause
Unlike the preceding defenses, which arise under common law and potentially apply without regard to the language of the contract, the defense of force majeure is based on a contractual provision. A force majeure clause excuses nonperformance when events beyond the control of the parties prevent performance. Force majeure clauses vary in their specific language, but typically list such events as acts of God, extreme weather events, riot, war or invasion, government or regulatory action including strikes, terrorism, or the imposition of an embargo. It is less common to see force majeure clauses that expressly contemplate a global health emergency, pandemic, or epidemic as a force majeure event.
Due to coronavirus impact, companies need to evaluate whether their contractual performance has been impacted by COVID-19 and the governmental response to the pandemic. If the parties cannot negotiate a mutually acceptable “pause button” postponing performance, then companies should evaluate whether there are defenses to performance which will reduce or eliminate liability for breath.
- CAN I USE LIABILITY WAIVERS POST COVID-19?
Last month, I covered COVID-19 liability waivers and provided a free form for your use. Some states have granted lability protection from COVID-19 lawsuits for businesses. If you are going to use a liability waiver for your business, you may want to check that the terms are clear, unambiguous, and fair. The other party needs to understand what they’re agreeing to when they sign it. A liability waiver will not necessarily protect your business from intentional, reckless, or grossly negligent conduct, so you may want to ensure that your business abides by local guidelines.
You might also check that your business carries proper insurance. You may want to consider, depending on the nature of your business, rent guarantee, business interruption, or business renter policies.
You can find contracts for your business and may download a free liability waiver form from www.GoLegalYourself.com
For more information on how to legally start and grow your business please visit my website at www.golegalyourself.com
Disclaimer: This information is made available by Bagla Law Firm, APC for educational purposes only as well as to give you general information and a general understanding of the law, and not to provide specific legal advice. This information should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.