Contracts in Disasters and Emergencies

Contracts & Licensing

In a time of disaster or emergency, it can be difficult or even impossible to perform contracts that your business agreed to before the disaster or emergency occurred. You may need to reschedule some work or even cancel the contract altogether. In an ideal world, you will be able to renegotiate your agreements with vendors and clients alike so that everyone is happy—or at least, not too unhappy. But knowledge is power, and going into the discussion well-informed will help your business figure out next steps.

Disaster or Emergency?

COVID-19 was declared a nationwide emergency on March 13, 2020. As of this writing, several states and tribal governments have disaster declarations, but it is not nationwide. There is a difference between a federal disaster declaration and a federal emergency declaration in terms of the kind of aid your business may be eligible for. How your contracts are affected by those declarations depends on factors including how your contracts are phrased and what your state’s laws have to say about various defenses to performance.

Force Majeure

Most of the time, the “force majeure” clause (also known as the “Act of God” clause) is sadly neglected. It goes in the “miscellaneous” section at the end of a contract, if it appears at all, and is usually dismissed as part of “the boilerplate.” But at times like this, it can be the most important section of your contracts.

Force majeure clauses cover the circumstances where a party may be excused for a delay or failure to perform altogether. A typical list for a force majeure clause may include acts of war, acts of God, a specific list of natural disasters, labor disputes, failures of utilities and/or the Internet, and governmental acts. More detailed force majeure clauses may list other events, including epidemics, pandemics, or declarations of disaster or emergency. It also usually requires the non-performing party to take certain steps, such as informing the other party that it is not able to fulfill its end of the contract, or taking commercially reasonable steps to resume work as soon as the force majeure event has terminated. Some force majeure clauses allow the unaffected party to terminate the agreement if the force majeure event continues for a certain amount of time.

If you are unable to perform your contracts because of COVID-19 and the related governmental restrictions on movement, check your agreements for a force majeure clause and see whether there is anything that might excuse performance or allow delay of performance. However, be aware that exercising the force majeure clause typically requires that the performance be impossible to carry out, not merely more difficult or expensive; and that you must follow any requirements of the force majeure clause, such as informing the other party of the force majeure event within a certain amount of time, as closely as possible.

Defenses for Non-Performance

If your agreements do not have a force majeure clause, or your force majeure clause does not include circumstances like COVID-19, your business may have to rely upon defenses for non-performance under services contracts.

The first of these is impossibility. When extraordinary circumstances arise, they may change the circumstances so much that performance is no longer possible because performance relied upon an assumption that is no longer correct. For example, a contract for a venue space for a meeting of 100 people assumes that it will be legal to hold gatherings of 10 or more people.

The second is frustration of purpose. Again, where extraordinary circumstances arise, it is possible that one party is capable of performing its part of the agreement, but that the entire reason for having the agreement has disappeared. For example, a contract for a band to perform at an event assumes that people can gather at the event; if an order prohibits gatherings of 10 or more people, the band may be small enough to still legally perform, but there is no point in doing so if the audience is prohibited from gathering.

Amendments and Template Updates

In an ideal world, both you and your clients or vendors will take an amicable approach to this situation and agree upon exactly how to address the COVID-19 pandemic. It is important to amend any written agreements to reflect your changes in plans, even if additional changes in circumstances later require additional amendments. Properly documenting what you have agreed to protects both parties and helps everyone involved to know what their obligations are. And in the worst case, proper documenting can be helpful if you have to go to court.

We have heard from some experts that it is possible that this virus will come and go in waves over the next several months until an effective vaccine has been developed, and that these disruptions to our lives and businesses may continue to ebb and flow. It is important to make sure that your business’s template agreements are set up to address that eventuality, or at least to have strong force majeure protections for your business as we move into this uncertain time.

If you need assistance with these or any other contractual issues, please feel free to contact us.

Ideas for Businesses and Business Owners Unexpectedly Working From Home Part I

Working from home woman business owner typing and texting.

Well, here we are, at the start of Week 2 of social distancing for Iowa and Minnesota. We are facing restrictions on travel, groups congregating, and operations of businesses. We are advised to stay at least 6 feet away from other people and (say it with me) wash our hands frequently for at least 20 seconds. We are at home with our families and our pets. We have a lot of downtime on our hands—as do our employees.

There is no sugar coating it: this is going to be a very tough time for small and mid-size businesses. Unemployment is up, and sales are down. We recently posted a list of resources for small businesses, including links to a variety of governmental agencies. We will be adding new links and those linked pages will all be updated regularly, so we encourage you to check back regularly. Please also feel free to reach out to us to suggest updates to that list. At the time of this writing, the new Families First Coronavirus Response Act, Public Law No. 116-127, is not yet in effect, and the Department of Labor has not yet provided the details about how it will address the exceptions for businesses with fewer than 50 employees. We will provide information as it becomes available.

While you and your employees are working remotely is a good time to work on some of those long-term projects you’ve been putting off—both personal and business. It may help your business emerge from this crisis in fighting shape. And if you, like so many business owners, have gone online unexpectedly, there are a number of things you may not have had to consider in a brick-and-mortar state that you should start thinking about now. We’ve put together some things to consider working on over the next weeks.

For Businesses Newly Online

If you have never run your business online before, it seems pretty straightforward: build an ecommerce website or move your yoga classes to a Zoom meeting and run with it. But there are a lot of other things to consider when you move online. Here are a few:

  • Sales taxes. If you had only one location and all of your customers came to you before, you needed to pay sales tax only for that location. The calculation changes when your customers are not coming to you. If your business is based in Iowa, look for more information from the Iowa Department of Revenue. If your business is based in Minnesota, look for more information from the Minnesota Department of Revenue. Both states may have special exceptions and updated information as the crisis unfolds, so check regularly for updates. Both states also participate in the Streamlined Sales and Use Tax Agreement, which aims to simplify the sales tax process for online retailers.
  • Website Privacy Policy, Terms of Use, and Terms of Sale. A website’s Privacy Policy explains how the website owner collects and uses data, including personal data, about people who use the website. A website’s Terms of Use are an agreement between the owner of the site and the site’s users. A website’s Terms of Sale are a contract between users who order from the site and the website owner. A Privacy Policy is required by the laws of some states, most notably California, if your website is accessible to users in those states. Terms of Use and Terms of Sale exist to protect the business owner and ensure that both parties know what happens under various circumstances—especially if an item doesn’t arrive, or needs to be returned, a prospect which you may not be relishing at the moment.
  • Liability Waivers. If you are suddenly giving fitness classes online, you have no way of knowing whether the spaces your customers are using are safe. To protect your business, you will want to ensure that your customers understand that they are responsible for ensuring they are using a safe space. If you already have a liability waiver, you may need to update it to reflect the new situation.

If you need assistance with these or any other concerns relating to your unexpected foray into e-commerce, please feel free to contact us.

For Businesses Looking for Things To Do

While it is not for the best of reasons, you and your employees may suddenly have a lot of down time from your regular business work. Especially if you are and/or you have employees scrounging for things to do in the midst of the disruption, this is the perfect time to pursue some of those long-term projects. If you don’t have your own list (or you’ve already worked through it), here are some ideas:

  • Adjust to the times. If your business’s organizing documents require any kind of in-person meeting without exceptions, it’s time to amend those. If you haven’t figured out what video chat software is most compatible with your business model (either free or paid), it’s time to find it. If you haven’t figured out how to work from home with the kids present, or if you have policies in place that make it unreasonably difficult for your employees to do so, it’s time to adjust those.
  • Get organized. Complete the filing. Make sure your electronic records are all in order. If you don’t have a system for managing customers, develop one or find a vendor who supplies one. If you’ve been thinking you’re outgrowing the capabilities of a software program or a vendor you rely on, take some time to do the research and determine what vendor offers the best solution for your business and implement it. If you aren’t there yet but might get there relatively soon, familiarize yourself with the marketplace so you’ll be ready for the transition later.
  • Get ahead. If you have a blog, create some evergreen content (content that will be timely no matter what is going on in the world). If you are a website designer, create some new templates to have ready to go for customers when they are ready to buy. Now is a good time to do any kind of preparatory work that you normally try to get ahead on in the slow times.
  • Take stock of your template agreements. I’ll soon write a post on the neglected Force Majeure clause that everyone is talking about now, but for the moment, this is a great time to evaluate the form contracts you have been using. How have they been working for your business? Do they cover everything that they should? Is there a situation that comes up frequently that isn’t included? Do they match the way your business actually operates? That last one can be a big problem if you just grabbed a form from the internet or if you simply haven’t updated your contracts in several years.
  • Work on legal compliance issues. Sometimes, compliance matters can fall by the wayside, or a new law with a lot of requirements can be too overwhelming to address before it goes into effect. Sometimes, smaller businesses rely on their small size to hope that no regulators will notice their non-compliance. Now is a good time to address the General Data Protection Regulation in the European Economic Area or the California Consumer Privacy Protection Act if you haven’t already.
  • Develop or revisit your trade secret protection regime. A trade secret is a type of intellectual property that creates value for its owner because it is secret. Trade secret protection is used to protect information and/or ideas that: 1) have actual or potential economic value if they are kept secret; 2) cannot be easily ascertained by others who are using proper means; 3) are minimally novel; and 4) are the subject of reasonable efforts to maintain them as secret. A trade secret must be protected in a way that is reasonable under the circumstances—it has to be secret enough to stay hidden, but revealed enough to be useful. Trade secrets should be protected with physical, procedural, and technological means. If you have never created a systematic method of protecting your trade secrets, or if you have but haven’t re-evaluated your method recently, now is a good time to do so.
  • Consider protecting other intellectual property. Registering copyright with the U.S. Copyright Office is not difficult, but is time-consuming. If you aren’t sure how to go about it, we offer copyright registration training remotely, and we’ll get you set up to register your own copyrights going forward. If you already know how to do it, and you suddenly have a lot of free time, now is a pretty good time to get things moving. Registering trademarks with the U.S. Patent and Trademark Office generally takes a little more work and benefits from assistance from an attorney. You can learn more about the benefits of trademark registration from this blog post.

This post is plenty long, so we will stop here; Part II will include suggestions for businesses facing changes, for people contemplating starting a new business, and for helping you to help your business.

If you would like help with any of the legal issues we’ve mentioned above, or any other legal issues, remember, we’re open and able to help with legal issues businesses are facing in this public health crisis. We offer telephone and video chat consultations, including free initial 30-minute consultations. We are also able to work with businesses facing financial hardships at this time. Please feel free to contact us to discuss your business’s options.

Updating Your Website? Update Your Terms!

Working from home woman business owner typing and texting.

We are officially in the swing of 2020. Welcome to a new year—and a new decade! If you’re feeling ready for a change and updating your website, or even if you aren’t, now is a good time to take a look at your website’s Terms of Use, Terms of Sale, and Privacy Policy. If they are more than a couple of years old, you are probably behind on some important legal developments. If you “borrowed” them from another website or found them in an online template, they may be causing you more harm than good. If you have no terms at all, you may even be violating the law.

Why are terms so important?

Terms of Use

A website’s Terms of Use are there primarily to protect your business. They are a contract between your company and the users of the website. They give you one more tool for taking action against anyone who misuses your company’s website, from hacking to copyright infringement to sharing inappropriate content. If your website allows its users to share information, posts, and so on, the Terms of Use are also the best place for you to share your company’s DMCA take-down procedures, which help protect your company from liability if a website user infringes on a third party’s copyright rights. They are also where to share any guidelines you have for users about what they are or are not allowed to post on your company’s website. And if you haven’t updated your Terms of Use recently, you may not have kept up with shifting rules about how to ensure those terms are binding on your website’s users.

Terms of Sale

If you sell products on your website, the Terms of Sale are also there primarily to protect your business. They are a contract between your company and anyone who makes a purchase on your website. They govern who bears what risks: when is an order official? What happens if you don’t have the product in stock? When or why can your customer return products for a refund or a store credit? Having clear, unambiguous Terms of Sale can help protect both you and your customers.

Privacy Policy

Finally, what is arguably the most important document: the Privacy Policy. This document informs your website users what information you are collecting from them and how you are using it. There are laws in at least three states that require you to have a Privacy Policy and set out specific requirements for what the Privacy Policy must cover. Other states don’t have specific requirements for your policy, but do have specific requirements for the kinds of security and procedures you need to maintain—and it could be a problem if you don’t describe what you’re doing accurately in your Privacy Policy. It is absolutely critical that your Privacy Policy accurately describe your practices, and if those state laws apply to your company, that it comply with them. Your company may also have additional rules to follow and disclosures to make if it is in a regulated industry like finance or health care. The consequences of non-compliance can be pretty draconian, so it’s better to comply than to

So you need to make an update. What do you do?

First, consider how well your current terms are working for you. Maybe you’ve had a dispute with a customer about a product sale and want to make sure that you don’t have to go through that again. Maybe you host a web forum and have noticed some troubling behavior you would like to ban in the future. Maybe you are aware of some of those new state privacy laws, and know you aren’t in compliance, but just haven’t had a chance to get around to fixing things yet. Maybe you updated your website and you aren’t quite sure if your old Privacy Policy is still accurate.

Second, gather some information from your web developer. What kinds of personal information are you collecting? What kinds of non-personal information are you collecting? What kinds of technology are you using to track your users? Is there anything your developer has noticed website users doing that they shouldn’t be?

Third, contact our office to help you make updates. Your attorney will ask you questions about your website, about your business, and about your industry, and help you create terms for your website that will reflect your business’s unique needs.