Can you cancel your contracts due to the Coronavirus?
Many clients are wondering if they can cancel a contract due to the Coronavirus. The short answer is likely yes, but an equally important answer for you may be who pays for the consequences of cancelling a contract.
On March 12, Utah’s Governor Gary Herbert gave some recommendations to help slow the spread of the Coronavirus, which included limiting mass gatherings of more than 100 people.[1] And on March 15 the Centers for Disease Control and Prevention recommended that for the next 8 weeks all events with 50 or more people be cancelled or postponed.[2] But neither of these recommendations have the force of law.
Because the government is not yet requiring anyone to comply with these recommendations, any cancellation due to the Coronavirus may be inadequate to excuse a party from the performance of their contractual obligations.
Specifically, the rock band The Killers were supposed to perform at a Qualtrics conference in Utah on March 12, but Qualtrics cancelled the conference on March 3, and refused to pay The Killers. The management company for The Killers filed a lawsuit against Qualtrics on March 12, alleging that “…there is no health risk sufficient to justify cancellation under the agreement.”[3]
Before you cancel a contract, or accept the cancellation of a contract, we would encourage you to carefully read the contract, and understand the provisions of the contract related to a cancellation in consultation with your attorney. In addition, it would be prudent to clearly assign the costs of the cancellation in writing at the same time you either request a cancellation, or accept a cancellation, of a contract.
Key issues to consider:
- Does the contract give either party the option of cancelling for any reason, or only for specific reasons?
- Does the contract assign costs in the event of a cancellation?
- How far in advance do you have to cancel to avoid cancellation costs?
- Does it make sense to cancel an event in the future after the Coronavirus may have already passed?
- Are there alternative ways to fulfill contractual obligations that both parties can agree to in light of the Coronavirus?
Finally, don’t forget that things will likely be back to normal again, possibly sooner than expected, and you will likely want to effectively work with these same parties again. So some flexibility and goodwill in the short term could be prudent.
[1] Press Release: Gov. Herbert announces recommendations to help slow the spread of novel coronavirus; March 12, 2020; source: https://governor.utah.gov/2020/03/12/gov-herbert-announces-recommendations-to-help-slow-the-spread-of-novel-coronavirus/
[2] Interim Guidance for Coronavirus Disease 2019 (COVID-19); March 15, 2020; source: https://www.cdc.gov/coronavirus/2019-ncov/community/large-events/mass-gatherings-ready-for-covid-19.html
[3] Salt Lake Tribune, March 13, 2020; source: https://www.sltrib.com/news/2020/03/13/coronavirus-lawsuit-utahs/