Force Majeure Clauses Hard to Invoke, Even in Pandemic

TL;DR

The NBA's labor contract allows for pay reductions during unforeseen events like epidemics, while other businesses face uncertainties with force majeure clauses amid the COVID-19 pandemic.

Transcript

this was the NBA in November this is the NBA today and this is the NBA's labor contract with its players with the season postponed due to the corona virus pandemic flip pass the details on salaries and signing bonuses to a suddenly very relevant section that gives the league a pass on pain some of its players wages right now the force measure claus... Read More

Key Insights

• 👻 The NBA's labor contract has a specific force majeure clause that allows for pay reductions during epidemics.
• 😀 Force majeure clauses are rarely invoked and historically face difficulties in court.
• 🥺 Many businesses do not have pandemics included in their force majeure clauses, leading to uncertainties amid the COVID-19 crisis.
• ❓ The inclusion of pandemics in force majeure clauses will likely increase in the future.
• 👨‍💼 Businesses should carefully consider long-term implications and potential litigation risks before invoking force majeure.
• ❓ Court decisions on force majeure related to the COVID-19 pandemic will provide more certainty for market participants.
• 🤪 Going forward, pandemics and other unexpected events, such as super volcanoes, may be included in force majeure clauses.

Questions & Answers

Q: How does the NBA's labor contract differ from other businesses' contracts regarding force majeure and pay reductions?

The NBA's contract specifically lists epidemics as an unforeseen event, allowing owners to trim players' pay by around 1%. Other businesses may not have such clarity in their contracts, leading to uncertainties and potential legal battles.

Q: How does force majeure work in contractual agreements?

Force majeure is a clause that excuses parties from their contractual obligations during extraordinary events, making performance effectively impossible. It has historically faced difficulties in court, with strict measures applied to force majeure claims.

Q: Why do many businesses not have pandemics included in their force majeure clauses?

Pandemics are unexpected events, and contract drafters cannot anticipate all possible occurrences. However, going forward, pandemics will likely be included in force majeure clauses, ensuring better coverage for businesses.

Q: What factors should businesses consider before invoking force majeure during the COVID-19 crisis?

Businesses should evaluate the long-term implications and potential litigation risks before invoking force majeure. By maintaining reliability and confidence, they may secure future business relationships and avoid possible legal battles.

Summary & Key Takeaways

• The NBA's labor contract includes a force majeure clause that allows for pay reductions during epidemics, limiting salary deductions to approximately 1% for players.

• Force majeure clauses, which excuse parties from their contractual obligations during extraordinary events, are rarely invoked but have gained attention during the pandemic.

• Many businesses do not have pandemics included in their force majeure clauses, leading to uncertainties and potential legal challenges.