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COVID-19
PANDEMIC

Sanctity of Contracts

By Mike Kreager and Trenton Brown

Contracts are unpleasant, but necessary. Every medical practice may result in being excused for the duration of the event, if the
has contracts: employment contracts, office and equipment leases, contract includes a force majeure clause.
equipment and software maintenance agreements, supplier and ven- Remember, the clause is usually buried at the end of the contract.
dor agreements, patient agreements, buy-sell agreements... In a con- If it’s there, look for anything referencing government action or,
tract, each side promises something in exchange for the other side’s better, epidemic. If those references are included, it may give a basis
promise. A promise to make an office available in exchange for the to suspend delivering on the contractual promise. But, the courts
promise to pay rent. Or, a promise to work in return for an agree- have not interpreted force majeure as a get-of-jail-free card, but as
ment to pay a monthly salary. a mitigation measure. In other words, the practice must take the
But what happens when uncontrollable events occur that prevent necessary steps to be able to perform. That’s where the cloudiness
one side from completing its promise to the other side? Consider enters the picture. If the practice can see patients via video (i.e., tele-
this — a pandemic. Schools are closed by executive order. The health and telemedicine options) or in limited numbers, thereby
schools relieve the teachers from duty. But the teachers have a con- complying with current safe-distancing guidelines while keeping its
tract to teach and are available and willing to teach. The schools doors open, is the practice excused from contractual performance?
don’t want to pay the teachers because the epidemic closed the While there is no clear answer, there is at least a basis to justify a re-
schools. Sound familiar? prieve. Again, force majeure is only a reprieve. When the disaster
Similar situations are occurring daily with COVID-19; this event ends, performance begins.
likewise occurred during the 1918 Spanish Flu epidemic. A 1918 Impracticability. What if the contract is silent about force ma-
contract entitled the teacher to $50 per month. The court awarded jeure? Fortunately, another legal principle may allow a practice to
the teacher the contracted rate for the duration of the school’s clo- interrupt performance. Recall the teacher ready to teach. Other
sure. The case went to the Illinois Supreme Court for review, where courts likened the epidemic to the school house having burned to
the court surveyed the judicial decisions of similar quarantines dur- ashes, in which case the school would have been excused from pay-
ing the epidemic and noted a marked dichotomy of legal principles. ing. The absence of students excused the school from paying the
On one side, cases showed schools were excused from paying the teacher because it was impractical for it to perform the contact with-
teacher’s salary during the closure because the epidemic was beyond out students. Essentially, impracticability inserts an excuse into the
the schools’ control and the closure was a government action. On written contract as an implied condition. If, without fault, a super-
the other side, the cases showed the school was compelled to pay vening event occurs that makes it impractical for the practice to per-
the teacher’s salary because the epidemic could have been foreseen form the contract, then the practice should be excused from
and the school could have added a contingency to excuse its obli- performing. As can be imagined, the courts are widely divided on
gation to pay if an epidemic, acts of God and similar events oc- the application of impracticability. Hence the name of this article
curred during the contract. — sanctity of contract. In other words, under the sanctity principle,
The current “shelter-in-place” orders by state and local authorities the contracting parties should perform their respective promises or
have forced non-essential businesses to close. If these orders af- include a force majeure clause to allow a temporary interruption.
fected your practice’s revenue, how does that affect any related con- The defense of impracticability, or its more widely-known name,
tracts? There are two legal principles to consider. As legal principles, impossibility, of performance is a high bar to clear and has scarcely
though, they do not automatically present definitive results. Their been applied to employment contracts. But this excuse rests on two
application is often “maybe” and it “depends upon the particular critical aspects. First, at the time of contracting, the parties must
situation.” have shared a basic assumption that a certain event would not occur
Force Majeure. From the French, “superior force,” but in legal to make the contract worth entering. The event must occur unex-
parlance, it means extraordinary events, like Acts of God, terrorism, pectedly after the contract was signed. A common example of a su-
acts of governmental bodies or authorities, civil strife and labor pervening event involves a supplier and a practice entering an
strikes. It is quintessential boilerplate. It often will include “epi- exclusive, one-year supply contract for PPE that the supplier man-
demic” — certainly a pertinent contract word for today’s environ- ufactures to FDA standards. The practice and supplier inherently
ment. Force majeure provisions are included in a variety of assume the supplier’s plant will not be destroyed during the term
contracts, including some employment contracts. If a contract is of the contract. The continued existence of the plant is the basic
unable to be performed because of current economic distress, it assumption on which the contract is made, even if it is not explicitly
continued on page 20
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