The events of the past year have changed how businesses are run and challenged business owners to find new ways to stay afloat amid economic turbulence. Many Alaska employers have had to make difficult decisions regarding hiring, layoffs, compensation and being able to fulfill terms of employment contracts. The question becomes, when can an “Act of God” clause excuse an employer’s inability to fulfill their contractual obligations?
What potential legal issues are there for force majeure?
The force majeure, or “Act of God” clause, is defined in Black’s Law Dictionary as “an event or effect that can be neither anticipated nor controlled”. As unanticipated economic or natural disasters are prompting more employers to consider including force majeure in employment contracts, a closer scrutiny of the language used to describe the unanticipated event will clarify under what circumstances an economic downturn triggered by such an event justifies invoking the clause.
Some legal issues that may arise in including the force majeure clause can include:
- Whether or not the employment contract or collective bargaining agreement imposes an obligation to give timely notification to the employee of the employer’s inability to fulfill the terms of the contract if force majeure is invoked
- If the force majeure provision excuses nonperformance completely, or only during the event
- If the contract imposes an obligation on the employer, when invoking force majeure clause, to mitigate the impact of the unanticipated event on their ability to perform under the employment contract. The contract may even specify what mitigation steps the employer must take for the duration of the event
While the common law doctrines of impossibility, impracticability and frustration of purpose can provide some cover, future employment contracts that incorporate force majeure may need a clarification of vague or ambiguous terms that do not specify the nature of the events that are triggering the clause. Employers may wish to carefully consider the potential consequences of including such a clause, including the contractual remedies that are available to the parties if the force majeure event occurs.
Having contingency planning when there are business disruptions is a must for business owners who are concerned about keeping their business viable. It is important to also consult with experienced legal counsel serving the state of Alaska to resolve workplace conflicts and contractual challenges.