Frustration of (employment) Contract and Force Majeure
Updated: a day ago
In case you weren’t in my webinars during the first lockdown back in March/ April 2020 I thought I’d write a blog on Force Majeure and Frustration of Contract.
Force Majeure is a French term that means ‘Act of God’. Used in an employment setting it could free both parties from all or some of their obligations under the relevant employment relationship. Many employers might be wondering if they can use invoke that clause due to COVID-19. It is best to review your clause and seek advice before enforcing them, see point 3 below. Here are some common questions about these clauses:
What situation does Force Majeure cover? An act of god can refer to a fire, flood, or some other natural disaster. Check your agreement, it might include pandemic or be broad to include something that is “outside of your control”.
What does this clause allow you do to? That is going to depend on the wording in your agreement. For some, this might mean a period of unpaid leave and for others, it might mean that the employment relationship ends.
What hooks are there to be aware of? In New Zealand, there is not a lot of case law around enforcing Force Majeure clauses, certainly not for pandemics. The international standards are quite high though, enforcing the Force Majeure clause may not be simple and this brings a higher chance that you could be a test case!
Frustration of Contract is another doctrine in Employment Law, as in other fields of law, that can absolve both the employee and employers’ obligations under the employment relationship. In this area, arguably, something happens that can be perceived outside of the employee and employers’ control which makes it impossible or illegal for the employee to work.
What is an example of this happening? This can happen in a few situations. One is where an employee loses their right to work in New Zealand, this might happen if their visa is not extended which means they cannot work for you. Another example could include losing a licence that an employee must have to carry out their functions (such as an annual practising certificate or a drivers licence for a driver). Another example might be where an employee is imprisoned and cannot attend work.
How do I go about enforcing this clause? It will largely depend on the reason behind why you want to enforce this. An employee always has a right to be consulted where you are proposing an outcome that could have adverse effects on their employment. An employee must be given a chance to comment and you must consider their feedback before making a decision. In this process, I urge you to consider what, if any, alternative solutions there may be. For example, whether an employee can work alternative duties for a short timeframe until they can return to their usual role.
Many employers are wondering if they can activate one of these clauses to bring employment to an end because of COVID-19.
You should always seek advice when looking to make decisions that can adversely affect an employees employment.