Health Care attorney, Daniel Schulte, discusses vendor contracts and changes to contractual obligations in light of the pandemic for the latest issue of The Journal of The Michigan Dental Association (October 2020).
Recently the MDA has received several questions regarding vendor contracts, including contracts for supplies, technology, and other products and services, as well and employment and independent contractor agreements, buy-in and buy-out arrangements, etc. The questions all note that at one time the contract made financial sense, but due to the pandemic they no longer do. Members are seeking advice whether it is possible to change contractual obligations due to this unexpected change in circumstances.
Most contracts contain a rather obscure (until now) provision, usually in the miscellaneous section at the end, labeled “Force Majeure.” A “force majeure” provision (French for “superior force”) is a contract provision that relieves the parties from performing their contractual obligations when certain circumstances beyond their control arise, making performance illegal or impossible. In the absence of a force majeure clause, parties to a contract are left to the mercy of the narrow common law contract doctrines of “impracticability” and “frustration on purpose,” both of which rarely result in excuse of performance.
Most force majeure provisions include floods, hurricanes, earthquakes, and other weather disturbances sometimes referred to as “acts of God.” Other covered events typically include war, terrorism or threats of terrorism, civil disorder, labor strikes or disruptions, or fire. A pandemic or other public health emergency, in my experience, is sometimes, but not always, included. The same can be said for a government order or regulation. If the pandemic itself or one of the many Executive Orders issued by Michigan’s governor makes your performance of a contractual obligation illegal or impossible, then performance is excused.
In most cases, however, this will not be the case. Paying or accepting the agreed-upon amount to satisfy a buy-in or buy-out obligation, paying for products or services you previously agreed to purchase or sell, etc., have not become impossible or illegal as a result of the pandemic. Instead, these transactions may have become disadvantageous due to the current circumstances.
Read the complete article in the Journal of the Michigan Dental Association on page 20.
About the author:
Daniel J. Schulte has more than 25 years of experience helping clients solve tough problems and capitalize on opportunities that require a blend of business and legal expertise. His practice focuses on addressing the legal, business, licensing, and regulatory challenges of health care professionals, organizations, and facilities. Dan understands how legal issues impact business objectives and, as a result, offers his clients practical, results-oriented advice. He is a Certified Public Accountant, former managing partner and current executive committee member of the firm. Dan also serves as co-chair of the firm’s Health Care Practice Group.
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