When the COVID-19 virus forced the whole nation to go under lockdown, employers and businesses knew they will not have any income while overhead costs persist. Many quickly searched for remedial measures and one of the most popular question asked was, ‘Can the Company terminate employment by relying on force majeure clause?’ This article shall discuss on the application of such clauses and whether companies now should take a proactive action to include it in its current and future contracts.
Force majeure can generally be defined as the inability to perform a contract due to an unforeseeable event at the fault of neither contracting parties. As it is not enunciated in any Malaysian statute, it cannot be automatically imposed or implied in any situation. Instead, the most important rule of Force Majeure is that it must be explicitly included in an individual’s contract and be wide enough to cover the current crisis in order to enable it to be applicable. The Courts will not amend, include or imply force majeure clause into a particular contract.
There is an absence of written guidelines in drafting and applying the clause. It is therefore, up to the parties on how the clause is to be drafted as the final product shall be the governing terms that will dictate the usage of the clause. Some crucial elements required to be included are:
I. Whether the force majeure clause applies only in the event a contract is delayed, temporarily or entirely unable to be performed?
II. Will force majeure allow the contract to be completely dissolved or temporarily suspended?
III.Is crisis present under the force majeure clause?
IV. What are the procedures applicable in invoking the clause?
As the clause is only enforceable on particular occurrences of crisis enunciated, it is important to cast the net as wide as possible. It can be acts of God, acts of government or events beyond the control of the contracting parties amongst others. Ewan McKendrick, Force Majeure and Frustration of Contract (Lloyd’s of London Press Ltd, 2nd Ed, 1995) at page 36 states that:
“It is, therefore, extremely difficult, if not impossible, to draft a force majeure clause which shuts out the doctrine of frustration completely, because even the widest of clauses may be held not to cover a particular catastrophic event [such as in Metropolitan Water Board]…”
Looking at the matter from the general perspective of employers, it is important to note that even though you might be able to immediately discharge employees from your payroll, the possibility of a claim under s.20 IRA 1967 being made is still present. This shall cause the claim of force majeure to be dissected by the judiciary. At the same time, the sudden upturn of business might require the business to employ manpower in a short period of time. Once force majeure is invoked, the employees no longer have the obligation to return and start work as normal. Employers thus have to halt operations or spend a significant amount to recruit and rehire new employees.
To ensure the clause works to businesses’ advantage, it is highly advisable to draft it with the company’s nature in mind. For example, when the company is situated in a country with frequent earthquake, force majeure clause would not be of much help as it is highly anticipated. Same goes to COVID-19 as it has emerged for almost 9 months.
In conclusion, a force majeure clause is a good term to be included in all contracts as we can never know what tomorrow holds. Nevertheless, it is important to ensure it is put in writing and to be as wide as possible as to not limit the organisation in any way. But do not be so quick to activate such a clause as there are still potential risks available.