COVID-19 & Force Majeure By: Stephanie Idio
Updated: May 4
During this grey time, where fear of COVID-19 mixes with actual sickness, the coronavirus negatively affects many links of the fashion retail chain. From manufacturing, distribution, logistics, whole selling, retailing, and buying, so many people are directly involved with the fashion of business. Some of these effects are: manufacturer shut down due to global lockdown; little to no distribution; and trouble selling vast amounts of stocks that won’t sell. The same is true with wholesalers and retailers who have to still pay rent. Moreover, clients and potential customers are not spending unnecessary money right now because of unemployment, lower pay, and fear of uncertainty. How does this affect a legal contract between any of the parties on the retail chain when there are force majeure clauses set in place for the worst of times? What is force majeure? It literally means superior force in strength; and is an unforeseeable circumstance that prevents someone from fulfilling a contract because the performance is commercially impracticable, illegal, or impossible. Not to be confused with an “Act of God.” Acts of God are unpredictable natural events such as storm, earthquake, flood. Force majeure is, human-initiated action that cannot be predicted or controlled by the party to the contract. However, many contracts include both terms to make sure that both natural and unnatural risks are covered. How is it used? It removes liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling obligations. What constitutes a force majeure? War, explosions, hurricanes, riots, strikes, slowdowns, lockouts, and blackouts- just to name a few. How will the clause be interpreted and applied in court? It depends on the jurisdiction and judge. Some judges (and parties) may argue that this pandemic was no worse than the flu; while others may point to the government restrictions on commerce as dispositive. Other issues courts will look at include: whether this pandemic frustrated the entire purpose of the contract; whether it is impractical or impossible for one party to perform. Let’s face it, only necessary employees are allowed to travel to work outside of the home in many states so, it may be illegal for many to perform under their contract at this time. Lastly, some contracts include actions that either party should take or not take in case of impossibility risks occurring. That way a mutually agreed upon backup plan is in place. In the end, everyone must rethink their business structure, be flexible, negotiate, be creative, and have a backup plan in times of pandemonium. Reputation is always solidified in business, so going forward, companies and brands must do their part and work together because we are all affected. Kind negotiations will not be forgotten, but neither will stern ones.
Stephanie Idio, J.D.
Florida Coastal School of Law, 2012