The outbreak of the COVID-19 pandemic resulted in force majeure becoming a ubiquitous phrase and a great deal of literature has been sought to outline its meaning and implications. At the most fundamental level, force majeure roughly translates to ‘superior force’ and operates primarily in the domain of contractual law. It is employed to provide for an allocation of liabilities if the performance of a contractual obligation becomes impossible or impracticable. For example, an earthquake or a tsunami might render the delivery of goods under a contract of carriage impossible, therefore invoking the application of a force majeure clause.
Force Majeure: A General Legal Overview
As seen above a force majeure clause covers natural disasters and events falling under the scope of acts of god. However, it is pertinent to note that the term includes acts of persons as well, this is subject to the caveat that the event or its effect could not have been anticipated.
Under Indian laws force majeure is often conflated with a closely related concept known as the Doctrine of Frustration of Contract. It is important to note that the former term has not been defined or addressed specifically under the Indian Contract Act, 1872. Most of the jurisprudence related to force majeure has been explained through case laws which demarcate the differences between the two aforementioned concepts.
Satyabrata Ghose v. Mugneeram Bangur & Co. and Energy Watchdog v. CERC are two major judicial pronouncements that explain the position of force majeure in India. In the former case the Supreme Court drew a distinction between the Doctrine of Frustration of Contract embodied in the form of supervening impossibility under Section-56 of the Indian Contract Act, 1872 and force majeure. The court did so by observing that the former is a positive rule that must be applied by the court whereas the latter is one that is dependent on the intention of the parties.
In the latter case (Energy Watchdog) the above rule was modified by the Apex court in the following manner. As long as force majeure was expressly/impliedly mentioned in a clause under a contract, it was governed by Section-32 of the Indian Contract Act, 1872 and any dissolution/discharge must take place in accordance with the same. Whereas, so far as the event under dispute was outside the scope of force majeure under the contract it would be governed by Section-56. The court also pointed out that the notion of impossibility under Section-56 should be construed as impracticable as opposed to literally impossible, thereby expanding the scope of the provision.
Difference Between Force Majeure & Frustration of Contract
From the above we can draw the following difference between force majeure and frustration of contract. The former is typically in the form of a contractual clause whereas the latter is a statutory provision. Therefore, while force majeure seeks to limit liability and define situations that can be mutually agreed to be outside the scope of an agreement, frustration of contract is a part of the law relating to discharge of liability due to ‘impossibility’ of performance.
Impact on Employment Law & Human Resources
It is evident from the above that the primary concerns from a human resource perspective relate to how contracts must be drafted. If there is an explicitly defined force majeure clause then the same must clearly define events that are outside the scope of the same. Employers should refrain from trying to define events within the scope of force majeure as the same is excessively time-consuming and impossible to define exhaustively.
Another concern pertaining to employment contracts is with regards to the notice period stipulated thereunder and the duty on the party invoking the force majeure event to notify the other part of its incapability to perform its obligation. This relates to apportionment of liability under the clause as timely notice provides both parties to come to an amicable understanding/find an adequate solution.
Apportionment of liability in cases of force majeure events must be adequately outlined without any ambiguity or scope for misinterpretation. This goes beyond employment contracts with current employees and applies to prospective employees and recruitment activities as well. For example, if a prospective employee is given a conditional offer dependent on the outcome of an interview, and subsequently the candidate is unable to attend the same due to an unforeseen event or the company suffers heavy financial losses due to a force majeure event.
Can the employer rescind the offer? Or can the employer simply postpone the candidate’s induction? Would these constitute a violation of the contract? These are questions that HR leaders must address by making provisions that deal with the same in their internal process documents. Other aspects that require similar treatment are dealing with force majeure events under leave policy relating to emergency leave, payment during the same and termination of employment due to the same.
While the above aspects deal with the impact of force majeure events on contracts and policies relating to white-collar employment, there arise significant issues when the same is juxtaposed with blue-collar jobs. For example, if the same situation is analysed from the perspective of a factory, the requirements change drastically. This is because the nature of employment in such establishments requires physical attendance. Therefore, measures like introducing ‘work from home’ is rendered impossible creating the additional issue of restricted cash flow. Since industrial establishments cannot function during a force majeure event like the COVID-19 lockdowns, they have no funds to pay their employees. Thus, apportioning liability for wages and indemnification in case of such events is absolutely imperative for industrial establishments.
Whether the COVID-19 epidemic and ensuing lockdown are force majeure events comes down largely to the contracts between parties and the interpretation thereof. However, the challenges it continues to create must prompt HR leaders and business executives alike to re-evaluate their internal policies to deal with the effects of such events in the future. The lockdown crisis revealed several drawbacks in the way employment contracts are drafted and managed. Moreover, it revealed grey areas in the employer-employee relationship that need to be readily addressed to ensure smooth functioning and protection from risks from potential force majeure events in the future.
How have you as an HR leader dealt with the challenges posed by force majeure events? Has your company changed its policies? If so, what have been those changes?
Drop your thoughts in the comments below.
|Disclaimer: This blog is meant for informational purposes and discussion only. It contains only general information about legal matters. The information provided is not legal advice and should not be acted upon without seeking proper legal advice from a practicing attorney.|
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