By Peter Steinmeyer and Amy Bharj

Law360 (April 15, 2020, 3:32 PM EDT) --

Peter Steinmeyer

Amy Bharj

As employment lawyers grapple with the impact of COVID-19, they may find themselves grappling with a legal doctrine that many had relegated to post-bar exam memory erasure: the doctrine of force majeure.

Many employers are currently parsing the meaning of that doctrine as used in existing agreements and collective bargaining agreements, while others will soon be pondering whether to include such a clause in future employment or collective bargaining agreements.

What Is a Force Majeure Event?

Black's Law Dictionary defines "force majeure" as "an event or effect that can be neither anticipated nor controlled." But what is such an event or effect, and what does it mean that it could neither be anticipated nor controlled?

What about a hurricane if you live in Miami; or a flood if you live along the Mississippi River; or a wildfire if you are otherwise lucky enough to have moved from Chicago to Malibu, California; or COVID-19 — if you live anywhere in the world?

And so a question now facing many employers is whether the COVID-19 pandemic is in fact a force majeure event which excuses an inability to perform a contractual obligation. And the answer is: It depends.

As with most things in the legal world, the devil is in the details, as not all force majeure clauses are created equal. Some contracts may specifically delineate pandemics, epidemics or outbreaks of disease as force majeure events.

Others, however, may contain more general force majeure clauses that refer to acts of God or events that are outside of the parties' control. No doubt, many parties will end up litigating whether COVID-19 qualifies as a force majeure event under these more general clauses.

Effect of a Force Majeure Event on Contractual Obligations

But even if an employment contract clearly contemplates an epidemic or a pandemic, such as COVID-19, as a force majeure event, there are still other issues that employers need to examine.

First, is there causation between COVID-19 and the employer's inability to perform under the contract? If the answer is yes, has COVID-19 made it completely impossible for the employer to perform or just more difficult? 

Second, does the employment contract (or applicable state law) impose an obligation on the party invoking the force majeure event to timely notify the other party of its inability to perform under the contract? For example, collective bargaining agreements may include notice provisions that require employers to provide the union with timely notice of the employer's inability to perform under the contract as a condition of being able to rely on the clause.

Third, does the force majeure provision excuse the employer's nonperformance completely, or only during the pendency of the force majeure event? For instance, if an employer has made an employment offer to a prospective employee but the business has stopped operating due to a statewide shelter-in-place or quarantine order, the employer should consider whether the force majeure provision allows the employer to withdraw the offer entirely or simply delays the prospective employee's start date until the business can resume operations.

Finally, notwithstanding the force majeure clause, how can the employer mitigate the effects of COVID-19, and does the contract delineate the required mitigation? For example, in the current pandemic, many employers have attempted to mitigate the effects of shelter-in-place orders by allowing employees to work from home.

For contracts that lack an express force majeure clause, common law doctrines of impossibility, impracticability and frustration of purpose may fill that void and applicable state law will define the contours of these three defenses. Impossibility may provide a defense where events or occurrences outside the parties' control render the employer's performance impossible.

Similarly, under the impracticability defense, performance may be possible but unfeasibly difficult because of the unforeseeable events. Finally, frustration of purpose occurs where the unforeseeable event or occurrence destroys the very basic premise of the employment contract. 

But one key difference between these common law doctrines and the doctrine of force majeure, is that force majeure allows the contracting parties to assign risk under defined circumstances, rather than relying on dusty common law doctrines, which may be ambiguous and/or ill-fitting. In the words of former U.S. Circuit Judge Richard Posner, the doctrine of impossibility is the off-the-rack option where the parties have not drafted a provision that otherwise assigns the risk.[1] 

Force Majeure Clauses in Employment Agreements Going Forward

Unfortunately, natural disasters like 100-year floods or hurricanes are seemingly no longer 100-year events. Rather, they seem to be the new normal. Global pandemics such as COVID-19 may also become far more regular events. Indeed, the outbreaks of SARS, MERS, Ebola and COVID-19 all occurred in a 17-year period. 

As events like these become the new normal, disaster planning will become an even higher priority for all employers, and force majeure clauses may become a more commonly used disaster-planning tool. One industry in which disaster planning is particularly prevalent is health care, and perhaps not surprisingly, force majeure clauses are more common in health care employment agreements than in those of other industries.

And, yet, force majeure clauses should not be included without fully considering the potential consequences.[2]

Employers should consider clarifying any vague or ambiguous force majeure clauses to properly define and address anticipated risks. Among other things, they may want to ensure that pandemics, epidemics and other outbreaks of disease are specifically mentioned as force majeure events. General force majeure clauses that do not specifically include pandemics in their definitions may not provide protection during a future pandemic if courts find that such events have now become foreseeable.

Equally important, when negotiating a force majeure clause, employers should consider how the parties will allocate the risk if a force majeure event occurs and draft the available rights and remedies accordingly. For example, employers should consider whether to include liquidated damages remedies when a force majeure event requires termination of the contract. Employers should also review the choice-of-law provisions in their employment contracts and determine how widely or narrowly courts in the chosen jurisdiction have interpreted force majeure clauses.

Conclusion

While the term "force majeure" may sound a bit dusty and outdated, it is a term that many lawyers are currently reading up on. And others soon will be, as they do what all lawyers do: Plan for future worst-case scenarios. 

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Peter A. Steinmeyer is a member and co-leader of the trade secrets and employee mobility strategic initiative at Epstein Becker Green.

Amy Bharj is senior counsel at the firm.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Commonwealth Edison Co. v. Allied-General Nuclear Serv. , 731 F. Supp. 850, 855 (N.D.Ill. 1990).

[2] Commonwealth Edison Co., 731 F. Supp. at 855 (N.D.Ill. 1990) (Posner, J.) ("If, however, the parties include a force majeure clause in the contract, the clause supersedes the doctrine [of impossibility].").

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