For years, the force majeure clauses in contracts have been relegated to the end of your business documents in the "General Provisions" section. It was lumped in with sections talking about pronouns, signatures in facsimile, and waiver and severability clauses. Many business owners' eyes have glossed over long before they reach the end of the document and they never get to those clauses. But the past two years have taught us that a force majeure clause is extremely important. For years we joked about why we even need to have a clause for natural disasters, then 2020 came along and made us all rethink that position.
What is a Force Majeure Clause
If you've never encountered a force majeure clause in your business, it's a clause in your contract that deals with what happens when an unanticipated event that is beyond anyone's control happens and it specifies what the responsibility of each party to the contract is. If the unforeseen event happens, then it acts as a defense for not performing under the contract and it will determine what happens next.
An example of a force majeure clause from the American Bar Association:
Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any obligation under this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected party, including but not limited to fire, floods, embargoes, war, acts of war, insurrections, riots, strikes, lockouts or other labor disturbances, or acts of God; provided, however, that the party so affected shall use reasonable commercial efforts to avoid or remove such causes of nonperformance, and shall continue performance hereunder with reasonable dispatch whenever such causes are removed. Either party shall provide the other party with prompt written notice of any delay or failure to perform that occurs by reason of force majeure.
(It's a little scary how many of these things actually happened since 2020...)
Elements of a Force Majeure Clause
There are four main elements of a force majeure clause,
- A definition of the breach that allows a part to not perform under the contract;
- A definition of the force majeure event that it covers;
- A connection between #1 and #2; and
- An explanation of what happens after the event.
Why Do You Need One?
For years, the business owners that I work with have always questioned why these provisions are even in their contracts. It makes the contracts longer and they don't always understand the language anyway. But if the past few years have taught us anything it's that things can be unpredictable and these clauses allow for a little certainty amongst the parties to a contract in case some uncontrollable event happens.
Instead of just skipping to the end of the contract and signing, make sure you are reading through the clauses, especially a force majeure clause, so that you understand what it means for your business and your obligations and responsibilities under the contract in case something unexpected happens.
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If you're just starting your business and could use some help with your contracts, or if you've been in business a while and it's time for a fresh set of eyes to review them, let's set up a Legal Strategy Session to discuss the best options for you and your business.