If you’re a small business owner or sole proprietor who scheduled an in-person event prior to the COVID-19 pandemic, you’re probably wondering how to work out the logistics of a postponement or cancellation. Social distancing, which has been enforced in many states, means mass gatherings are not feasible for the foreseeable future.
You may have already collected registration fees or deposits, and you want to do the right thing, but you’re also worried about your own bottom line. There’s no perfect solution that will satisfy all stakeholders. A combination of business continuation insurance and government relief can help, but it’s important to understand how your contract(s) may be interpreted with respect to your inability to fulfill these obligations.
We’ll answer some of the most common questions businesses may have about force majeure, contractual obligations, and cancelled (or postponed) events.
Force Majeure Notice
Invoke the force majeure clause to renegotiate or terminate your contract.
What kind of contractual clause would protect me in the event I have to cancel or postpone an event?
The most common clause for such situations is force majeure, which provides relief when unforeseeable circumstances prevent the ability to fulfill your contractual obligations (through absolutely no fault of your own). These types of events are often referred to as “acts of God.” However, force majeure clauses are narrowly interpreted by most state courts, and they do not automatically apply in all scenarios.
What factors determine whether a force majeure clause will excuse me from my contractual obligations?
Generally, the following factors will determine whether you may invoke a force majeure clause and be excused from contractual performance (such as hosting a conference, appearing at a live show, etc.):
- The specific language used. Does the clause expressly include “epidemics,” “pandemics,” or “contagions” among the list of possible acts of God that may prevent the ability to perform? If not, then it may not protect you.
- Was the event truly unforeseeable? While this may seem obvious, it’s also a matter of timing. If you scheduled your event after March 11, which is when the World Health Organization declared COVID-19 to be a global pandemic, you may have a difficult time proving that the force majeure event was unforeseeable.
- Is the force majeure event a direct cause of non-performance? If it’s indirectly caused by the COVID-19 crisis, or impacted by other factors altogether, then the clause might not be enforceable.
- Severity and actual ability to perform. Can you prove that performance of your contractual obligations are indeed impossible? If it’s merely more expensive or less convenient, then it may not rise to this standard.
You’ll also want to determine whether the contract requires the non-performing party (e.g., a company cancelling an event) to reimburse other parties (those registered for the event) for costs related to non-performance. If in doubt, talk to a lawyer specializing in business contracts.
I don’t have a force majeure clause in my contract. What are my other options?
In the absence of a force majeure clause, you still may be able to renegotiate the terms of your contract to postpone or cancel your obligations. Sending a Force Majeure Notice to the other party, can be a way to kickstart the conversation, even if no such clause exists in your contract.
If your event involves a large number of registrants or attendees (such as a festival or conference), then it is in your best interest to speak with a lawyer to determine your options, especially if payment was involved.
What if I’ve already sold tickets to an event? Am I required to issue a refund?
No one knows for sure when public life will get back to normal, so you may not know whether it makes sense to cancel your event, postpone it until later, or even allow buyers to apply the ticket to another event. State laws about ticket refunds vary, but a lawyer can help you determine the best course of action in relation to your local law and any contractual language associated with the ticket purchases for your event.
Get a handle on your contractual duties and legal options
Everyone’s situation is unique and may require a different tact to resolve. If you’re uncertain about how to properly handle an event that was cancelled or postponed due to COVID-19, you can ask a lawyer or find helpful legal documents for free in the Coronavirus Legal Center.