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Businesses around the country are slowly beginning to re-open, and your business may be one of them. But for many companies, performance will not be the same for quite some time.
So, what happens if your business is unable to uphold an agreement with another party, whether contractual or verbal? Here are some best practices to steer your way through these prickly issues.
1. Communicate concerns
Inform the potentially affected parties of any concerns you have to manage expectations as early and as clearly as possible. Whether the agreement is verbal or contractual, effective communication can preserve relationships and lead to better cooperation. Blindsided parties will be less inclined to be flexible. And if you find yourself at the receiving end of performance concerns, be understanding. Clients will remember how you treated them during times of uncertainty.
2. Review contracts to determine each party’s rights and obligations
Look closely at relevant contracts to determine the presence of any clause that could protect you from breach of contract claims. One of the most popular clauses is the force majeureclause, which excuses nonperformance when events beyond the control of the parties prevent performance. The extent of force majeure protection varies across contracts, but for broadly drafted clauses, a business could argue that the COVID-19 pandemic constitutes an unforeseen, uncontrollable event significant enough to relieve them of their contractual obligations.
Even if the contract does not contain a force majeure clause, there are common law doctrines – such as impossibility, impracticability, and frustration of purpose – that can protect parties against breach of contract claims. Note that these concepts are not universally recognized, so if the other party does not seem inclined to work out alternate arrangements, it is important to check state laws and talk to your lawyer.
3. Negotiate Solutions
Create a win-win solution tailored to the current situation—or at least one that is balanced to both parties. If a written contract exists, consider documenting the changes in an amended contract. If the negotiated solution includes a legal “freeze” on a commercial relationship while the economy stabilizes, consider looking to the American Bar Association’s COVID-19 legal agreement template for guidance.
The pandemic has impeded operations for many businesses. But it is critical to create a solution that not only allows for both parties to survive through the crisis, but ensures that you still have a relationship for when the crisis ends.
