Understanding the Force Majeure Clause in Contracts

For years, the force majeure clauses in contracts have been relegated to the end of your business documents in the "General Provisions" section. It was lumped in with sections talking about pronouns, signatures in facsimile, and waiver and severability clauses. Many business owners' eyes have glossed over long before they reach the end of the document, and they never get to those clauses. But the past two years have taught us that a force majeure clause is extremely important. For years, we joked about why we even need to have a clause for natural disasters, then 2020 came along and made us all rethink that position.

Post-2020, your force majeure clause is no longer the last thing you'll read. In fact, if you run a B2C business, it's probably one of those clauses that you've spent more time pondering than you ever thought you would.

What is a Force Majeure Clause?

At its core, a force majeure clause excuses one or both parties from performing their contractual duties when specific external events make performance impossible, impractical, or unreasonably burdensome. These events typically fall into three categories:

Unforeseeable: The event could not have been anticipated at the time the contract was signed.
External: The event is beyond the control of the parties involved.
Irresistible: The event makes fulfilling contractual obligations impossible or impractical.

A traditional example could be if an earthquake destroys a supplier’s factory, delaying shipments and preventing the fulfillment of a contract, the supplier may invoke the force majeure clause to avoid liability for non-performance. More recently, we saw these clauses being invoked due to government pandemic restrictions.

Common Events Covered by Force Majeure

When you are drafting these clauses, they will often include a list of events that qualify as triggering circumstances. These events can be broadly categorized into natural and human-made occurrences:

Natural Disasters: Earthquakes, floods, hurricanes, droughts, fires, and other “acts of God.”
Human-Made Events: Wars (declared or undeclared), terrorism, riots, strikes, civil unrest, embargoes, and government actions like new laws or regulations.
Pandemics and Epidemics: Health crises such as COVID-19 have highlighted the importance of including pandemics in force majeure clauses.

Your specific list of events can vary depending on the contract’s nature and industry. For instance, geological risks might be prioritized in mining contracts, while supply chain disruptions may be more relevant for manufacturing agreements.

Key Elements of a Force Majeure Clause

When you're assembling your clause, there are a few key components that you should be sure to address:

Definition of Force Majeure Events
The clause should explicitly define what constitutes a force majeure event. This can be done through an exhaustive list (naming every possible event) or an illustrative list (providing examples but leaving room for interpretation).
Notice Requirements
The affected party must notify the other party promptly after becoming aware of the force majeure event. The notice should detail:
• The nature of the event.
• Its impact on contractual obligations.
• The expected duration of disruption.
Mitigation Obligations
The invoking party is often required to take reasonable steps to minimize the impact of the force majeure event. For example, they might seek alternative suppliers or adjust timelines to reduce delays.
Suspension or Termination
The clause should specify whether the contract will be suspended during the force majeure event and for how long. Some contracts allow termination if the event persists beyond a specified period.
Consequences of Non-Performance
The clause outlines whether non-performance due to force majeure relieves liability entirely or partially. It may also address whether payment obligations continue during the disruption.
Governing Law
The enforceability and interpretation of a force majeure clause depend on applicable laws. Different jurisdictions may impose varying requirements for invoking force majeure.

Why You Need To Customize Your Contract

While standard templates for force majeure clauses exist, customization is crucial to address industry-specific risks and unique circumstances. For example:

In construction contracts, delays caused by labor strikes or material shortages might be emphasized.
In technology agreements, cyberattacks could be included as a potential force majeure event.

Tailoring the clause ensures that it aligns with the parties’ expectations and protects their interests effectively.

Challenges With These Clauses

While many times it seems that a catastrophic event should be clear enough evidence that you can't fulfill your contractual duties, enforcing a force majeure clause can be challenging due to ambiguities in language or differing legal interpretations. Some issues include:

Drafting: If a clause lists specific events (e.g., earthquakes) but omits others (e.g., pandemics), courts may limit its application to only those listed events.
Causation: The affected party must demonstrate a direct link between the force majeure event and their inability to perform contractual obligations. Courts may reject claims if alternative performance was possible but not pursued.
Jurisdictional Variations: Some jurisdictions apply stricter standards for invoking force majeure.

Force Majeure During COVID-19

The COVID-19 pandemic underscored the importance of robust force majeure clauses in contracts worldwide. Businesses faced unprecedented disruptions due to lockdowns, supply chain breakdowns, and workforce shortages. As a result of the pandemic, many companies revised their contracts to include pandemics as a force majeure event.

Drafting a Force Majeure Clause

Since everyone loves a good checklist, here are some things to be sure to address when drafting your force majeure clause:

Clearly define qualifying events while leaving room for unforeseen circumstances.
Specify notice requirements and timelines for invoking the clause.
Include mitigation obligations to encourage proactive measures during disruptions.
Address suspension versus termination options based on event duration.
Consult your attorney to ensure compliance with governing laws and industry standards.

A force majeure clause is an indispensable tool for managing risk in contracts. By providing relief from liability during extraordinary events, it safeguards businesses against unforeseen disruptions while promoting fairness between parties.

However, its effectiveness depends on careful drafting and clear communication between stakeholders. As global challenges like climate change and geopolitical tensions continue to evolve, businesses must regularly review and update their contracts to ensure robust protection against emerging risks.
Incorporating lessons learned from past crises—such as COVID-19—can help organizations build resilience and maintain continuity even in the face of “superior forces.”

Do I Need a Business Attorney?

If you're putting together contracts for your business and want to discuss whether you should include a mediation clause, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you and your business.