A month ago, we were at work and school. Grocery stores were full of toilet paper, hand sanitizer, flour, and milk. “Flattening the curve” meant that I needed to lose a few pounds. The coronavirus (COVID-19) pandemic has now swept through the United States like a hurricane. Businesses have been shuttered, supply chains are stretched or broken, and employees are required to work at home – if they haven’t been laid off completely.
During this pandemic, what do you do if your business can’t pay its rent, ship an order, or otherwise fulfill contractual obligations? Most business contracts include a “Force Majeure” clause (French for “superior force”). This clause essentially states that, in the event of a war, riot, Act of God, or other overwhelmingly disruptive event, one or both parties can be excused from performance of the contract. Now, unless you’re a lawyer, when was the last time you read the Force Majeure clauses in your contracts? Probably not before March.
Compare the following two Force Majeure clauses for Amazon’s services. First, the clause in its subscription service agreement with sellers:
Force Majeure. We will not be liable for any delay or failure to perform any of our obligations under this Agreement caused by reasons, events or other matters beyond our reasonable control.
Second, the language from their Amazon Web Services (“AWS”) platform’s service agreement, under which Amazon will not be liable for issues
…beyond our reasonable control, including acts of God, labor disputes or other industrial disturbances, electrical or power outages, utilities or other telecommunication failures, earthquake, storms, or other elements of nature, blockages, embargoes, riots, acts or orders of government, acts of terrorism, or war.
The second version is much clearer. Why is this important? Because Netflix uses AWS, and just suffered an outage. If Netflix tries to recover against Amazon for failing to meet Service Level Agreement (“SLA”) requirements, Amazon would absolutely cite the specific terms in its Force Majeure clause, and would likely be protected.
Under the one-sentence version, a disgruntled seller could argue that Amazon’s decision to prioritize certain goods over others was well within Amazon’s control and does not excuse its failure to perform. Amazon would then spend time and money litigating the meaning of “reasons, events, or other matters beyond our reasonable control.” The slightly longer clause could save Amazon hundreds of thousands of dollars, if not millions.
In interpreting Force Majeure clauses, Pennsylvania courts have said that a polar vortex is not an “Act of God” excusing an electricity provider from performance, and that a mining company’s poor mining practices and lack of due diligence – not an Act of God – caused its breach of contract. Every case is different, but a carefully crafted Force Majeure clause can be the difference between your business surviving and collapsing.
Lawyers will be litigating Force Majeure clauses for years to come as a result of this pandemic, and businesses would be well advised to carefully review the Force Majeure clauses in their contracts. Don’t take them lightly – they are there to protect your business from this very difficult situation.
May you and your loved ones remain healthy and safe.
— Joshua D. Waterston, Esq.