How a Force Majeure Clause Can Help an Online Business
In this COVID-19 world, everyone wants to know if force majeure applies. In this post, you're going to learn what "force majeure" means, what it does, and when it applies. We'll also look at some force majeure sample clauses and I'll give you some examples of business transactions and how they're affected by force majeure. Essentially, you'll see how a force majeure clause can help in times of emergency.
First, what is "force majeure"?
It's French for "superior force."
It's a clause that appears towards the end of a lot of contracts, especially service-based contracts.
It basically excuses non-performance or not living up to your end of the contract for circumstances out of anybody's control.
What can a force majeure clause do?
Well, it could suspend everything until the force majeure is removed or eliminated or out of the way,
It can say, "everybody can walk away if a force majeure event happens,"
It can, but it doesn't always, talk about what happens to any money that's changed hands as of the force majeure event. So, refunds, deposits, etc.
When does force majeure apply?
Currently because of COVID-19, everybody wants to know if it applies in the case of a pandemic. Of course, the answer is it depends on what the contract says.
So, let's look at these two sample force majeure clauses.
Example 1:
Neither party will be liable or responsible to the other party, or be deemed to have breached this Agreement, for any failure or delay in fulfilling or performing any term of this Agreement, when and to the extent such failure or delay is cause by any: (I) flood, fire, or explosion; (ii) war, terrorism, invasion, riot, or other civil unrest; (iii) embargoes or blockades in effect on or after the date of this Agreement; (iv) national or regional emergency -- including, but not limited to, pandemic, uncontrollable and/or imminent spread of contagious disease; or (v) strikes, labor stoppages or slowdowns, or other industrial disturbances (each of the foregoing, a "Force Majeure")...
This first version specifically talks about what is considered a force majeure event.
The second version is similar, but different.
If Company's performance of the Services or any obligation under this Agreement is prevented, restricted, or interfered with by causes beyond Company's reasonable control that could not be avoided by the exercise of due care including, but not limited to, acts of God, illness, injury, emergency, fire, explosion, vandalism, storm or other similar occurrence, orders or acts of military or civil authority, or by national emergencies, insurrections, riots, or wars ("Force Majeure")...
Notice it says "force majeure includes, but is not limited to..." certain things. That leaves room to say hey, maybe a pandemic is included in this definition, even though it's not specifically listed.
How a force majeure clause can affect online businesses: two scenarios
As I said, it can affect different businesses in different ways.
One example would be in a brand or partnership/collaboration agreement. As an influencer you may have agreed to do a certain number of posts on a specific topic.
Well, does force majeure somehow prevent you from doing that? Are you supposed to be posting from a live event of some kind or in a specific location that you can't access because of a force majeure event? These questions show how a force majeure clause would be important in this scenario.
It also applies to in-person events. Even though the final event is conducted in person and not really on the Internet, certainly tickets are sold on the Internet. And, promotion of the event goes on on the Internet, sponsors are announced and splashed across the Internet. So, reviewing sponsorship agreements or other similar agreements may be necessary during a force majeure event.
What to look for
It's important to know what happens under your contract because when an event that's out of anybody's control happens, of course everyone is going to be worried about funds. So, you want to determine:
What is a force majeure event under my contract?
Is there an express definition of what is considered a force majeure event or does it have that kind of "including but not limited to" language.
What does my contract say happens during a force majeure event? Is everything just kind of stopped and suspended until it all goes back to normal? Or, does it say everybody can walk away if a force majeure event happens with no further obligation?
Finally, and you may actually have to look elsewhere in your contract, but what happens to money paid up to that force majeure event date? Does it get refunded? If your contract talks about a non-refundable retainer I might say, yeah, even if the force majeure clause doesn't talk about what happens to money in the case of a force majeure event, non-refundable means non-refundable.
So, look at your contract, see what it says in terms of what to do in a force majeure event.
I hope this post has helped you to understand what is force majeure, how it applies in different industry settings, and how it can help an online business.