This article originally appeared on Citybizlist as part of a series featuring Burns & Levinson attorneys helping businesses and individuals navigate the many challenges that COVID-19 presents.
Q. The event-planning industry is under extreme financial pressure given the widespread cancellations of events across the globe. Can contractual obligations be terminated without liability? Does coronavirus trigger a force majeure clause?”
Amidon: The main types of agreements that would be most directly affected by the COVID?19 pandemic for event organizers are venue/hotel licenses (which provide the space for the event), housing agreements (which provide for guest sleeping rooms), attendee/delegate registrations, and vendor contracts. Most venues and hotels have very robust agreements that provide for limited rights of cancellation by event organizers – typically coupled with a cancellation fee. And, there are often deadlines in the contract that can cause these cancellation fees to escalate, the longer the organizer waits to pull the trigger. Commitments to attendees and delegates are typically found in the attendance registration terms, which vary widely in the market. Properly crafted terms would allow the organizer to reschedule and/or relocate the event, without liability to the attendee, and would allow the organizer to cancel the event and refund any attendee deposits paid, as the limit of the organizer’s liability.
A “force majeure” clause (FMC) provides that a party’s nonperformance, or delay in performance under a contract is excused, if the reason for the delay or nonperformance is beyond the impacted party’s control. Again, the relief offered all depends on the contract language: Some FMC’s are written broadly, so that it’s triggered by any circumstance beyond the impacted party’s control; others list out limited reasons to excuse performance, such as acts of God. It’s important now for these contracts to be reviewed by experienced counsel, so that the organizer’s rights and obligations are clearly understood.
In addition, there are multiple common law (i.e., not contract specific) legal doctrines that can potentially excuse a party from performance under a contract because of some unforeseen event, like the doctrines of frustration of purpose and legal impossibility. However, these are narrowly interpreted, so a thorough analysis is highly recommended before relying on any of these doctrines.
Q. Many parts of the country are currently under government-mandated shutdown, how does this impact contractual obligations and liabilities?
Amidon: These shutdowns now range from government-imposed bans on public gatherings of greater than a stated number of individuals, to full-blown stay-at-home, shelter-in-place directives. For example, here in Massachusetts, the Governor’s office initially banned public gatherings of more than 25 people, with limited exceptions that generally won’t help the typical event organizer – and now has declared a state of emergency and ordered non-essential businesses to close. The biggest implication for organizers is, of course, where government action has the practical effect of canceling the event. This affects rights under the venue license, housing and room-block agreements, decorating and other event-related services agreements, and attendee/delegate registrations – Hopefully, those agreements provide for excused nonperformance, either by right or under an FMC that protects the event organizer.
Q. How should event organizers handle near-future events that fall outside of current mandated closures, given the likelihood that a mandate could well be extended or the venue could not be fully operational?
Amidon: The event organizer needs to review its upcoming portfolio – what events are scheduled within the currently mandated closure period and any likely extensions? Monitor what the public health professionals are saying about the expected duration of the pandemic and likely extensions of precautions – like closure mandates. Talk to your event stakeholders,e.g., advisory boards and key exhibitors/sponsors about options to reschedule or relocate. Be proactive with contract counter-parties.
Q. Will an organizer’s insurance coverages – show-stoppers or business interruption – cover coronavirus-related disruptions? What steps should companies take to preserve potential claims?
Amidon: Most event organizers carry a typical comprehensive general liability (CGL) coverage package, which often includes “show stoppers” coverage. Show stoppers is insurance to protect the organizer’s projected event revenue when the event is canceled or otherwise can’t be held due to insured circumstance. Many of the show stoppers policies I’ve reviewed in advising event organizer clients contain a specific exclusion for communicable diseases in humans, negating coverage for COVID-19 based event cancellations.
Other coverages typically include business interruption insurance. This covers lost revenue and other damages due to the necessary suspension of business operations. The suspension must be caused by direct physical loss of, or damage to property at a business premises (typically described in a schedule to the policy) caused by or resulting from any covered cause of loss. As with show stoppers coverage, I’ve found many business interruption polices have an express exclusion for communicable diseases in humans, again negating coverage for COVID-19 based event cancellations.
Nonetheless, event organizers should consider making and documenting claims under all potentially applicable policies. The first step is to contact your broker and insurance professionals and report the claim to its insurer. And begin now to properly document the claims; this will assist the insurer in quickly evaluating whether coverage is available and complete its coverage investigation and, if covered, pay the claim sooner rather than later.
Q. Event organizers are likely facing a lengthy period of slow business activity. If layoffs become necessary, how should they be handled? Should the worker-specific elements of a government stimulus package play a role in layoff decisions?
Amidon: The reflex to cut costs during a crisis like this is understandable. Sometimes it’s the prudent and, indeed, unavoidable thing to do to keep the company afloat. However, avoiding staff cuts, if possible, can enable the company to exit the crisis stronger than ever. There are several factors that should be part of the leadership’s calculus in making these decisions. Communication with staff about goals and objectives should be open, honest and in real-time – and consider collaborative opportunities. Leadership should lead by example, sharing in sacrifices being asked of their staff. Consider less conventional options, such as a shortened work week for roles where you have excess capacity, or offering employees the opportunity for an unpaid “sabbatical.” Salary-increase and bonus freezes, eliminating overtime, reducing PTO, and pausing retirement fund contributions are other measures to help reduce costs that stop short of layoffs.
Patience is important. As with past crises, there is a push for government assistance. Unlike past crises, this time there seems to be much less resistance toward economic stimulus, at least those targeting individuals and small- and mid-sized businesses, simply because this crisis isn’t anyone’s fault, and the “right” aid may actually prevent layoffs. Most commentators agree that this crisis will pass. Actions taken today should be evaluated in light of how they will affect your business’ ability to rebound when it does.
If you do need to make layoffs, it’s important to follow the correct practices regarding prior notice requirements (if any), how employees to be let go are selected, etc. There is nothing different here than in any reduction in force.
Q. What steps should event organizers take now to survive what may be extended challenging times?
Amidon: The most important factor in successfully navigating any crisis is understanding how it will affect your business plan, and adjust. Don’t panic, evaluate. Make decisions that are necessary in the short term but don’t jeopardize your longer-term objectives and goals. Specifically: Look at your upcoming portfolio of events and for each develop a go/no-go timeline. Communicate with your internal and external stakeholders, and develop consensus around a shared plan of action that can maximize the chance of the event’s survival, even growth. And look for opportunities to better serve your markets and expand into others – one example here would be migrating an in-person event to a virtual format. Together, we can get through this.
About the Author: David Amidon
David Amidon has almost 30 years of experience helping a wide array of clients, serving as both general counsel and transactional counsel to a broad and diverse group of entrepreneurs, start-up and emerging ventures, middle-market companies, private equity and venture capital funds, investment banking firms, private investors, and public companies. He can be reached at email@example.com or 617.345.3578.