With the rapid spread of the new coronavirus (COVID-19), life has been disrupted in a variety of ways. Conferences and events have been canceled around the world while international travel has been cut back by many organizations. What should you do if your nonprofit organization has a major event but you’re worried that the event might not be able to move ahead?
Criteria for cancellation. The first step is to think through the pros and cons of cancellation and what will need to happen before you know that you have to cancel the event. Maybe it is a certain amount of cancellations, instructions from local, state, or federal authorities, or a decision by leadership that the risk of holding the event outweighs the benefits. As of the time of this post publication, many local and state authorities are advising people to avoid mass gatherings. We have no idea when those recommendations may become less restrictive, leaving much uncertainty in the near and medium term.
Your organization should be sure it relies on the recommendations of experts but realize there are practical and public reputation concerns. Look at where your attendees are coming from, their means of travel, and the nature of the event. Even if you believe the relative risk of carrying on the event is low, from a health perspective, the organization may expose itself to a reputation risk if it is the only event carried on while other organizations are canceling theirs.
From a legal perspective, there may also be cutoff dates in your contracts where it gets more complicated to cancel the nearer to the event date you get, making the decision timeline more clear.
Is there a cancellation clause? If you think there’s a decent chance you will need to cancel or postpone the event, review your major contracts. Check the cancellation provisions – many contracts have a specific process to follow if you want to cancel. You may also be able to request refunds of amounts already paid. Conversely, you may face liquidated damages if you cancel. Those damages typically increase as you approach the event date and/or are payable immediately upon notice that you intend to cancel.
Is there a Force Majeure Clause? Some contracts won’t have a cancellation provision, but they may have a “Force Majeure” clause (or it could have both). The standard F.M. clause allows either party to terminate the contract if performance becomes impractical or impossible, and the F.M. clause typically lists a number of sample scenarios. Those scenarios often include Acts of God, war, strikes, and other scenarios outside the control of either party.
Note that the language in the F.M. clause can vary, raising or lowering the bar for termination. Some contracts use the term “impractical” or similar. With the current travel recommendations in effect through much of the world, organizations would likely be able to rely on a F.M. clause to cancel the contract, based on continuation or performance being “impractical”. On the other hand, if the F.M. clause uses a stricter “impossibility” standard, the contract may not be able to be terminated under the F.M. clause unless transportation to or from the venue has been fully shut down or gatherings have been fully banned.
In addition to the actual language of the F.M. clause, check to see what the effects of a termination under the clause are – in some contracts, a force majeure termination relieves you of any future obligations but does nothing to return deposits or other funds already paid.
Consult your insurer. Hopefully, your organization obtained event insurance that covers cancellation and will cover risks associated with your event. As soon as you begin to seriously consider cancellation, notify your insurer. They may have insight into how to mitigate any potential loss related to the cancellation, as well as strategies to make sure the process goes smoothly.
Whether you plan to terminate the contract under a cancellation or force majeure clause, you’ll want to consult with legal counsel and your organization’s leadership. Make sure you’re prepared to deal with the consequences of cancellation, which may include cancellation fees, sunk costs, and rescheduling challenges. Then notify your venue and service providers. You’ll also need to come up with a plan for your attendees, including determining how much (if any) of the registration costs can or must be reimbursed, and whether the registrations can be rolled over to a future event.
How to talk to your contracting partners. The conversation should first start from one of disappointment and cooperation – you wish you could move ahead, but public health concerns make it impossible and it would be in everyone’s interest to postpone. You may also have specific instructions from governmental authorities prohibiting you from continuing (or strongly advising against going ahead) with the event. Ask your contracting partners to consider working with you to reschedule the event. Hopefully, they will understand and you can move forward cooperatively.
Of course, some of your contracting partners may not want to let the contract terminate. They may demand additional payments. We recommend that you enter into the discussion with an open mind to try to reach a resolution that, while imperfect, recognizes that you had a contract that was disrupted by events well outside of everyone’s control. Rescheduling the event is a solution that might work for everyone, although there may be some costs already accrued that you will need to resolve. If a mutually-agreeable solution can’t be reached, look to the contract’s cancellation or F.M. provisions, if available, for how to proceed.
A Legal Theory of Last Resort – Impossibility. If the contract doesn’t have a termination or Force Majeure clause and your contracting partners won’t cooperate, there is one last option. The law generally recognizes “impossibility” as a justification to terminate a contract, even in the absence of a specific clause in the contract (note this is separate from a Force Majeure clause that uses “impossibility” as the threshold for cancellation). “Impossibility” is a high bar – typical examples include where the venue is destroyed. But while courts say the theory is “applied narrowly”, it is permissible where performance becomes “objectively impossible.” The factors a court looks at (at least in New York, but you can check your local laws) are “the foreseeability of an event occurring, the fault of the nonperforming party, the severity of harm, and other circumstances affecting the just allocation of risk.”
So if your contracting partners try to force you to pay the full price for an event that cannot go forward, and you don’t have force majeure or a cancellation provision to fall back on, consult with local counsel about the possibility of using impossibility to cancel the contract.
