Efficient And Effective Business Litigation

Enforcing force majeure in employment contracts

On Behalf of | Dec 29, 2021 | Employment Disputes |

Business owners in Southern California and elsewhere continue to experience employment, supply chain and inflationary challenges that are affecting their bottom line every day, and challenging them to look for new ways to remain viable.

Businesses face not only worker shortages but also other issues affecting the smooth running of their operations, and sometimes must make difficult decisions regarding compensation and other terms of employment contracts. Many of these contracts include a force majeure clause that provides an out for an employer’s contractual obligations. Invoking this clause can be a double-edged sword, however, depending on the language and specificity of the conditions.

The “Act of God” clause

A force majeure, or Act of God, clause exists in many business and employment contracts, and a standard definition of it is that it is “an event or effect that can be neither anticipated or controlled”. Unanticipated economic downturns or natural disasters may prompt employers to include such a clause in employment contracts, but its application depends on whether the circumstances of such an event justify its use.

Employers must take into account certain conditions, such as:

  • if there has been timely notification under the language of the employment contract of the employer’s inability to fulfill the contractual obligations as a result of the force majeure event
  • if the event excuses the employer’s nonperformance completely, or only during the duration of the disruption
  • the duty that the employer still has to mitigate the effect that the force majeure event is having on its ability to perform under contract, and the contractual obligations the employer must take

Employers would be wise to find ways to clarify any ambiguous terms that do not specify the exact nature of the triggering events in their force majeure clauses, as well as the contracting parties’ rights and duties.

Alternatives to the force majeure clause

For small businesses that do not have a force majeure in their contracts, there may also be an out in the Uniform Commercial Code, Section 2-615, under the doctrine of commercial impracticability, which highlights the occurrence of a contingency as rendering the basis of the contract void. There are also the common law doctrines of impossibility and frustration of purpose that may provide some protection, depending on state laws and jurisdiction.