In today’s trying times of global pandemic and various National Governments closing border, locking down businesses and social functions. The economic activities of the private sectors have been greatly “lock down” as well with many business leaders and HR professionals seeking ways to escape the economic chaos and the resultant labor costs/liabilities of staff salaries. There have been many contemplation as to what is the best justifying decision in relation to this and perhaps how to escape it. As a business owner, you’re probably wondering what will happen to the employment contracts that you have entered into with staff on your payroll in light of the business disruption caused by the current global health crisis; Covid-19.
As a service provider or vendor you may also be wondering what this means for your undelivered goods and undelivered services which have been paid for by your customers. You’re worried that your customers might demand a full refund of their payments as you are breaching the terms of the contract you signed with them by not performing your obligations in the contract.
Are you one of such business owners? Well, you need not worry at all if your employment contract or other type of service contract includes a force majeure clause and even when it doesn’t you may still have a cover.
Understanding a Force Majeure Clause
Directly translated as “superior force” from its French origin, a force majeure is a contractual clause that frees both parties to a contract from any liability or obligation when an uncontrollable event, such as a war, strike, riot, crime, epidemic, pandemic or an act of God such as natural disasters, prevents one or both parties from fulfilling their obligations under the contract.
Although this clause frees both parties from any liability, it sometimes does not excuse a party’s non-performance, but only suspends it for the duration of the force majeure.
A force majeure clause is usually drafted like this:
“In the event that either party is unable to perform its obligations under the terms of this Agreement because of natural disasters, pandemic, strikes, acts of God, or any event reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. Notice of a party’s failure or delay in performance due to force majeure must be given to the unaffected party promptly thereafter but no later than five (30) days after its occurrence which notice shall describe the force majeure event and the actions taken to minimize the impact thereof.”
You may however, need expert hands to help with all your legal documents.
For most businesses, the Corona-virus outbreak with its resultant effects such as the lock down in place in some states in Nigeria and movement restrictions in other states has made it nearly impossible to fulfill the condition of employment or other certain contracts. This should automatically trigger the force majeure clause in their business contracts (if it was included).
What You Should Do Now
- Review your contract– As a business owner or founder, you need to ascertain whether your contracts have a force majeure clause and whether the Corona virus outbreak has substantially impacted the performance of your contracts. Where your contracts do not contain a force majeure clause protecting you from any liability, it needs to be reviewed and updated by your lawyer. You may also be able to rely on a legal doctrine known as “Frustration”. We talk more about this later.
- Comply with notice requirements – Many force majeure clauses require a period of notice by the party triggering the clause (beginning from when they first became aware of the circumstances) for it to count. You need to comply with this notice period and give written notice to the other party.
- Renegotiate other key clauses in your contract and/or replace with a new contract if need be. This goes without saying. Thank goodness with the availability of easy-to-access Lawyers Market where you can get good legal advice, you can take action on negotiating alternative ways to fulfill a contract with other parties.
Understanding Frustration clause.
Unlike force majeure which does not always terminate a contract, frustration always results in the termination of a contract. It applies when situations not covered or contemplated by a contract happen. It kicks in as a result of external unforeseen situations that make it impossible, impractical or onerous for a party to perform their obligations in a contract. You may need to speak with your lawyer to know whether frustration applies to your situation.
The force majeure scenario occasioned by the Coronavirus outbreak serves as a reminder for every business to always have their employment contract drawn up professionally and to ensure that every possible circumstance is covered in business agreements.
Your winning edge
Remember, your winning edge is to stay proactive, evolving as the society and the economy may be, this will do a great deal for your business- your winning edge is to engage the services of professional HR consultants to help you review, rewrite, or implement policies, processes and procedures that will always safe your business.
Well, we know it’s not easy to manage at these times, and we are not pretending it, but you can transfer the headaches of managing these processes (your selection, hiring process and management of staff employment) to experienced consultants to help you in this. You can contact our Human Capital Management Teams at https://www.mctimothyassociates.com/call-me-back/ to help you.