The COVID-19 pandemic has changed the way we live our lives, but also how we conduct our business every day. In fact, many businesses all over the US have had to simply stop working and press the pause button indefinitely. With no way of knowing when the pandemic will eventually end, many companies are unable to work online, which has led to their need to pause their contractual obligations. How can you pause contracts due to the coronavirus pandemic? A flat-fee business lawyer can help you understand and advise you as to contractual obligations that are unable to be fulfilled.
Why are business activities restricted by state and federal governments?
One of the main challenges related to the COVID-19 pandemic is that it has impacted just about every industry. As a result and with no end in sight, all over the world governments have had to step in. For the first time in US history, every state in the United States has declared a state of disaster. Accompanying those declarations are numerous societal limitations, including on public gatherings, retail and restaurant operations, and school shutdowns.
On top of that, some states like Arizona, New York, and California, among others, have instituted their own shelter in place / stay-at-home orders. What this mean is people need to stay inside their homes and only essential businesses are allowed to function at this time. Figuring out what business is essential is a bit of a struggle, because the definition varies from one state to the other. It’s a case-by-case analysis- as a state like Arizona may have different ways to define what businesses are essential when compared to California, or others.
Understanding Contractual Defenses in the COVID-19 Landscape
As understood in basic contract law- a breaching party to a contract will be liable for damages. Despite that, there are defenses available that can excuse a breaching party for non-performance. There are 3 main contractual defense categories that come to mind in a situation like the COVID-19 pandemic.
The first defense is impossibility or impracticability- where a party should be excused from liability for breaching a contract if they couldn’t perform. A business lawyer in Arizona can help understand if this defense is applicable, but given government mandates related to COVID-19, where many companies are unable to work or complete any type of task- it would stand to reason that in many situations, this would be a viable defense to non-performance. A good example here would be a concert performer unable to perform at a venue, due to the venue’s inability to open due to being classified as a “nonessential business” under government stay-at-home orders.
Next applicable contractual defense would be frustration of purpose. Such a defense asserts the idea that performance changes are permissible if there is an event (like a global pandemic) which changes the contract nature and makes the performance of a party obsolete.
Lastly, but not least there are force majeure clauses, which are likely to be most applicable. Force majeure clauses are a defense usually embedded into the language of a contract, intended to allocate the risk associated with an “Act of God.” Most of the time these Acts of God are related to natural disasters, extreme weather events, terrorism, governmental actions and so on. While it’s uncommon for a pandemic to come to mind when thinking of force majeure, given the global situation at hand, such a situation could absolutely be under the purview of an Act of God.
A flat-fee business attorney can help you invoke any applicable defenses and properly handle any COVID-19 related contractual issues in a proper manner. The coronavirus pandemic has changed the way we do business (be it online or offline), and we need to remain determined and focused on the future, as we shift to this new way of life and business. As you can imagine, pausing contracts may become a necessity, but you should always have a legal advisor to help!