April 27, 2020
Cynthia Rigsby, partner, Foley & Lardner
Review purchase and supply contracts to determine what “force majeure” rights and requirements may apply
Force majeure refers to a legal doctrine under which a party may be relieved from liability for non-performance if circumstances beyond the party’s control prevent the party from fulfilling its obligations under a contract. Force majeure provisions can vary greatly depending on how they were drafted by the parties, but they usually cover several categories of events that could impact suppliers and customers across the supply chain.
While most force majeure provisions are unlikely to list disease, epidemics, or quarantine specifically, many include general provisions covering such things as natural disasters, “acts of God,” acts of government, or “other circumstances beyond the parties’ control.” The coronavirus outbreak presents a somewhat unique situation in that it includes both a naturally occurring component (the virus itself) and a government action component (including the quarantines and other measures put in place in response to the outbreak).
Parties should carefully review the force majeure provisions in their contracts to determine whether they apply. Any party seeking to invoke the force majeure provisions in its contract usually must show that there are no alternative means for performing under the contract, as increased costs alone will not be sufficient to prevail on a claim of force majeure.
Review merger and acquisition (M&A) agreements
Companies party to definitive M&A agreements should review any “Material Adverse Change” (MAC) clauses, and representations and warranties, to assess the potential impacts of the coronavirus on their transaction. For attorneys drafting and reviewing definitive M&A agreements now, care should be taken in crafting or reviewing appropriate MAC clauses, representations and warranties and other provisions to take the potential impacts of coronavirus into account. On the buy side, enhanced focus on supply contract due diligence is recommended.
Review reporting requirements
Public companies should review and make accurate required disclosures, in the event that business operations are impacted such that a reporting requirement is triggered. All companies party to credit agreements and other financing arrangements should review existing MAC clauses, and potential impacts on the borrower’s financial covenant compliance, in order to determine whether proactive conversations with lenders may be warranted.
The challenges for any business facing coronavirus or any other disease outbreak involve a multitude of conflicting legal obligations. Under the occupational health and safety laws employers have a general duty and obligation to provide a safe and healthy work environment, even when the work occurs outside the employer’s physical premises. Furthermore, employers must not place their employees in situations that are likely to cause serious physical harm or death.
Conversely, overreacting by implementing broad-based bans and making business decisions about employees that are not based on statistical realities could get an employer sued under laws that prohibit discrimination based upon disability (perceived or real) and national origin discrimination, among others.