Contracts Are Under The Microscope Thanks To COVID-19 – But Force Majeure Isn’t A Cure-All

Over the last two weeks, there probably wasn’t a lawyer in America who didn’t field at least one phone call from a stressed-out client asking about activating force majeure to get out of a contract.

With events on ice for the foreseeable – media buys either canceled or postponed and commercial productions ground to a halt – brands, agencies and vendors are scrambling to figure out which contractual obligations they need to fulfill … and which they can dodge.

But force majeure, a common legal proviso that allows one party to renege on a contract due to unforeseen events outside of the party’s control isn’t a panacea, said Doug Wood, a partner at law firm Reed Smith and co-author of a COVID-19 legal survival guide for brands developed at the request of the Association of National Advertisers.

“What no one likes to talk about is the fact that most force majeure clauses are just thrown into a contract,” Wood said. “It’s usually so broad that you end up with something generic and useless – I’ve seen some pretty horrible force majeures recently where I thought, ‘What is that even doing in the contract?’”

The worst ones are the cut-and-paste jobs that refer to acts of god or declarations of war. “I would not want to be the one going into a court arguing that COVID-19 is an act of god, and while we’re fighting a hidden enemy here, it’s not a war,” Wood said.

Although it’s obvious that some contracts simply cannot be executed because of what’s happening with the coronavirus, he said, courts are also generally reluctant to carry out force majeure clauses.

But before it even gets to that point, compromise is always better than legal action, especially if the parties involved want to do business together again in the future.

“Brands have leverage when this is all over, and venues, media owners, actors – everybody – will need help from brands to bring them back to life,” Wood said. “Don’t be penny-wise and pound-foolish right now; it’s really about relationship management.”

Rather than canceling a big TV media buy, for example, why not allow the network to donate that money to the Ad Council? And if a brand isn’t able to shoot an in-person commercial, there’s always the stock footage and voiceover option.

“It’s easy to lose sight of the fact that one party’s gain is another party’s loss, and we’re all part of the economy,” Wood said. “It’s a matter of balance, because everybody has a tale of woe.”

But regardless, most brand/agency contracts are sloppy, something marketers and their partners are going to realize as they start getting into the technical details they were blithely able to gloss over when times were good and plenty.

Maybe one silver lining from this whole mess is that contracts will get cleaner down the line as people learn from their mistakes.

The idealist in Wood is hoping that’s the case, but the realist in him doesn’t think so. Wood has been representing brands for more than 40 years and he’s lost track of the number of times he’s doled out advice that wasn’t taken.

After the K2 Intelligence media transparency report came out in 2016, for example, you’d think every advertiser would require audits of their media partners, right? Well, you’d be wrong.

Some brands still have contracts in place that are more than 15 years old and don’t even mention the notion of transparency. Other major brands, some of which have multimillion-dollar media budgets, are still operating on the honor system with their agencies.

“There are a lot of contracts out there, particularly on the agency side, that I guarantee are woefully inadequate,” Wood said. “Will this change a year from now because of COVID-19? I’d like to think it could be a much-needed wakeup call, but, based on my experience, I’d be less than honest if I said I was optimistic about that.”

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