What is a force majeure clause?
The COVID-19 pandemic has devastated small and large businesses alike
A force majeure clause is a provision often included in contracts that allows a party to withdraw from an agreement in the wake of an “extraordinary event,” according to a definition by Cornell Law School.
The term has been used most recently as businesses across the nation and the globe grapple with the consequences of the new coronavirus, which has temporarily closed some businesses and, in other cases, shut them down for good.
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The clause “frees both parties from obligation if an extraordinary event prevent one or both parties from performing,” Cornell Law School’s Legal Information Institute states. “These events must be unforeseeable and unavoidable, and not the result of the defendant's actions, hence they are considered ‘an act of god.’”
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More than 246,275 COVID-19 cases were reported worldwide as of Friday morning, with at least 14,250 of those in the U.S., according to data provided by Johns Hopkins University and Medicine’s Coronavirus Resource Center.
Several states across the U.S., such as California, New York and Nevada, have ordered small businesses that don’t fall under the “essential” category to close up shop or to decrease their on-location workforce significantly.
In New York, the state with the highest number of confirmed COVID-19 cases, Gov. Andrew Cuomo recently ordered non-essential businesses statewide to cut their in-office staff by 75 percent. He previously described “essential businesses” as including food services, health care and pharmacies, shipping and supplies.
Cuomo warned he could make further cuts and urged companies to voluntarily allow their employees to work from home.
Throughout the nation, small businesses in industries of every kind and size have been left devastated by the pandemic. Even before companies were instructed by local and state governments to close their doors, many faced difficulty carrying on as business dwindled.
And if they haven't been ordered to close by government officials, many are shutting down out of concern for employees, customers and clients or simply because business has vanished. Meanwhile, those that are still managing to operate are struggling.
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“My life's work is being ... you know, destroyed, like picked over,” said Theodore Peck, owner of a coffee shop and bakery in Brooklyn, New York. Peck had to fire his staff after the impact of the outbreak became too much to handle.
On the larger scale, the Metropolitan Opera announced on March 19 it was canceling the rest of its season and stopping pay for the orchestra, chorus and other unionized employees at the end of March due to the novel coronavirus.
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Having previously called off performances through March 31, the Met, citing force majeure, is not paying individual singers for canceled performances.
"In the history of theater and opera, in force majeure situations, artists who are very well compensated, such as those who perform at the Met, do not get paid. That's why their contracts are written in such a fashion," said Met general manager Peter Gelb in an interview with The Associated Press.
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"That does not mean that we are not sympathetic and supportive of them," Gelb continued. "For the Met to be able to come back and be a house they are able to perform in in the fall, it has to be strong and has to survive."
The clauses have also become a topic of discussion among professional sports leagues, such as the NBA, and player compensation.
The NBA suspended its season on March 11, after Utah Jazz player Rudy Gobert tested positive for the virus. Thirteen others have since also tested positive, and league officials are preparing for the suspension to last a month or longer.
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"The revenue consequences are significant,” National Basketball Players’ Association executive director Michele Roberts previously told USA Today. “Sure, there is language that allows the league to enforce what they perceive to be a ‘force majeure’ and that would have an impact on compensation for players going forward. But if it happens, there would be a recognition the league is prepared to lose tens of millions of dollars."
Earlier Thursday, the NBA sent a memo to teams telling them to close their training and practice facilities to all players and staff — plus recommending that players “take aggressive measures to avoid contact with others and remain home as much as possible, leaving only for essential activities."
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FOX Business’ Thomas Barrabi and The Associated Press contributed to this report.