As the impacts of the novel coronavirus pandemic continue, many small business owners are finding themselves dealing with an increase in cancelled and rescheduled projects. So how do you handle these disturbances in your business?
HoneyBook Head of Community Natalie Franke sat down with attorney Paige Griffith of The Legal Paige to talk about:
- best practices for protecting your business during coronavirus
- clarifications about Force Majeure
- contract amendments and fee clauses
Watch the interview or read the recap below.
On Force Majeure
Natalie: Last time we talked you said we weren’t yet in the land of force majeure… so let’s start there. Remind us what force majeure means and how have things changed since we last talked. Are we in “force majeure land” now?
Paige: Force Majeure is a clause that describes situations and unforeseeable circumstances in which it is IMPOSSIBLE for either party to perform its obligations under the contract, and then limits the impacted party’s liability for not performing under those conditions.
These clauses vary from contract to contract so you want to make sure you understand the express language in YOUR existing client contracts. One big issue is that many Force Majeure clauses do not specifically list a global “pandemic” as a Force Majeure event.
However, even if a “global pandemic” is not listed, what’s currently happening with stay-at-home orders and massive travel restrictions definitely does make it IMPOSSIBLE to host an event/wedding. And, most importantly, the biggest issue is that most Force Majeure clauses say absolutely nothing regarding the fees paid under the contract by the client and what happens with all retainers, past payments, and future payments. Thus, event industry professionals are left trying to decipher the best way to reschedule or cancel their services without facing legal liability related to the fees paid by the client or the possibility of having to give a full refund.
Natalie: What is the standard number of days that you should include in your force majeure to determine when the agreement can be terminated? E.g. After X number of days, the agreement may be terminated.
Paige: 5-10 days to notify is commonly used and 15-30 days to cancel. But, because these types of notification portions of force majeure clauses weren’t in a lot of people’s clauses previously, we are just dealing with the quick notice by your clients to reschedule or cancel, and then your ability to cure performance under these circumstances.
Natalie: We are advocating for clients and customers to #RescheduleDontCancel—and for those clients who choose to reschedule what is a business owner’s next step? What type of document do they need to sign? What should it cover? What should it cover?
- A contract addendum or amendment (they are the same thing) OR some type of full termination agreement (either to reschedule or cancel)
- Addendum just changes the date and/or the location
- Rescheduling contract:
- Keep funds on credit for x amount of time
- Release of performance obligations under original contract
- Void and terminate original contract (so now you can send them an updated contract!)
- Release of claims + confidentiality
On Handling Cancellations & Refunds
Natalie: Let’s say rescheduling isn’t an option… What if your clients want to cancel right now and are asking for a full refund?
Paige: This is going to depend entirely on three things: (1) the Force Majeure Clause wording in your existing contract; (2) the Fee and Retainer Clause wording in your existing contract; (3) the Cancellation/Rescheduling Clause wording in your existing contract; (4) whether or not at the time of invoking a Force Majeure Event you’ve performed services above and beyond the amount of the retainer; and (5) the mutual resolution you can make with your client.
In most cases, contracts state that the “retainer” is non-refundable somewhere in the fee clause and/or or cancellation clause. If you have that wording, that’s a good first step to keeping your retainer. Next, you need to try your HARDEST to “cure performance” due to the “Force Majeure event”–ahem, Coronavirus–that has impacted your ability to perform services. This means working your serious fanny off through communicating with your clients about rescheduling the event or performing your services in some fashion at a later date. You can of course be creative here, but the goal is to be willing to perform services paid for sometime in the future. You want to work towards a mutual agreement with your clients regarding how they can utilize the services they’ve paid for. My point here is to refrain from saying that you are just keeping the retainer outright. It’s absolutely crucial that you evidence through email communication that you are trying your absolute hardest to perform your services at a later date!
Worst case scenario would be about 10-15 emails and phone calls later with the client holding their ground and threatening a lawsuit, which is when you will either need to give a full refund or be ready for them to come after you down the road. That is not a situation where I can wholeheartedly say “x” is the correct answer. It will vary greatly depending on how legit your existing contract is and whether you are financially and emotionally okay with going into a legal battle, so to speak.
MOST of the people I consult with would rather pay up than get into a lawsuit. Lawsuits are expensive, emotionally draining, and wreak havoc on your business and personal life. There are very few circumstances where I think going to suit for a $1500-$3000 retainer would be worth it. You have to make that decision for yourself.
On Adding a Force Majeure Clause Into New Contracts
Natalie: Is it too late to add a force majeure clause into new contracts moving forward or into rescheduled event contracts? If it’s not too late, should creatives be more clear in their force majeure clause by stating the retainer (and any fees paid up until the force majeure event) are non-refundable or are being used for specific work leading up to the event?
Paige: Yes, something along the lines of “The retainer and all other payments made by [Clients] up to the date of Notice of a Force Majeure Event are non-refundable. In the event this Agreement is terminated due to the impossibility of the Impacted Party to cure its performance obligations, such payments shall be credited to Clients’ account and must be used within  months from the date of Notice of the Force Majeure Event.”
On Paige’s Top Piece of Advice
Natalie: If you could give business owners one final piece of advice in this season… what would it be?
Paige: Work on a mutual resolution with your clients. If you are having a hard time coming to one with your clients or they are really pushing for refunds and cancelling, while it may not be a win-win for all parties involved, a small lose-lose for both you (a little refund on your part and then not a full refund on the clients part) is better than increasing your liability and risk with a potential future legal situation.
Natalie: Where can people find you and stay in the loop with all of the amazing resources that you’re creating?
Paige: Find The Legal Paige on Facebook, Instagram or my website.
About Paige Griffith and The Legal Paige
Paige Griffith is the founder of The Legal Paige, a virtual law firm working with online businesses and wedding industry professionals. She is a certified Juris Doctor barred in the state of Montana and holds a double B.A. in Economics and Political Science. After working as a federal law clerk, Paige traded in the traditional law life for a virtual one and opened the doors to The Legal Paige in 2018. She helps her clients run legal and protected businesses and counsels them on issues related to contracts, intellectual property, privacy, and business law. Her mission is to create an online space where the law isn’t so scary and entrepreneurs can get legally legit in no time.
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Disclaimer: The advice featured in this content was provided for sharing of general information and knowledge. For specific legal, financial, and professional advice, please consult an authorized professional.