Matthew Kenney

Small Business | Workplace Law

Coronavirus and Contracts: Must You Perform?

|

The COVID-19 pandemic has negatively affected the global supply chain. Orders are going unfilled, which means contracts terms are not being met. Does it constitute a breach-of-contract when a supplier cannot fulfill its obligations?

The answer is: It depends.

Having a signed contract is one thing. Enforcing it is another. Under Florida law, there are instances where courts will excuse a party from contract performance. Two such instances: Where it is impossible to perform; and when it is impractical to perform.

However, courts will generally not excuse a party from performing when a disruptive event is anticipated at the time of contract formation. Stated differently, a court might require a party to perform if a risk — including a pandemic and resulting national emergency — was anticipated by the parties when they entered the contract.

The question before many business owners and their legal counsel: Is COVID-19 a risk that was reasonably anticipated by the parties?

Many written contracts will have a Force Majeure (meaning “Superior Force” ) clause, which excuses a party from performance if there is an unforeseen and uncontrollable event the parties could not have contemplated during the formation of their contract. There is no doubt COVID-19’s impact on one’s business is uncontrollable. The question in a breach-of-contract lawsuit, however, might be: Was it unforeseeable?

The phrase Force Majeure is generally used in contracts as synonymous with an “Act of God”. Contract performance prevented by hurricanes, floods and tornadoes would fall easily into this category. But what of COVID-19? Was this terrible event really unforeseeable?

Although COVID-19 feels like a sucker punch to our economy, futurists have warned of the risks of potential epidemics and pandemics (just like COVID-19) for years. Bill Gates gave a TED Talk on the subject in 2015, for example. Since 2000, the world has seen outbreaks of SARS, Swine Flu, Avian Flu, MERS etc. A reasonable person could argue parties should have addressed future epidemics and pandemics in their contract terms, given the notice we’ve been given by experts about our susceptibility to such events.

The point: Do not assume the effects of COVID-19 will absolve your company from contractual liability, even if performance is impossible or impracticable. A judge might ask: “If other companies and entrepreneurs specifically addressed the issues of national emergency, epidemic, or pandemic in their contracts….why didn’t you?”

Florida courts will likely evaluate your Force Majeure clause based on its clear, unambiguous language. It’s possible Florida courts will view non-performance related to COVID-19 as unforeseeable and uncontrollable events, freeing a party from performance. It is equally possible they will not. Therefore, the best approach going forward is to ensure your contract languages addresses epidemics and pandemics in clear, unambiguous terms.

Understanding Entrepreneurs

|

While a Doctor of Business Administration student, I became frustrated during a class. My classmates were defining “entrepreneurs” broadly. I recall one classmate saying “I’ve been working with entrepreneurs for 25 years, they are all paranoid control freaks”. As an entrepreneur, I was a bit offended. But I was also curious. Was my classmate correct?

As any good doctoral student would, I researched the topic of entrepreneur personality deeply. I wrote a paper entitled “Psychographic Segmentation of the Self-Employed”. With the help of Dr. Art Weinstein (my professor and leading scholar in the field of market segmentation), we published the article in the New England Journal of Entrepreneurship.

Our research found entrepreneurs can be classified into groups. Some are altruists, others have parental relationships with their firms, some are exemplars with a talent for commerce, and some are motivated primarily by a need for control. At the very least, companies should not market to small business owners as one market. Rather, as a large market with multiple market segments.

Recently, Dr. Weinstein and I learned our article is among the most downloaded articles in the journal’s history. It’s been downloaded by thousands of people at leading companies and universities globally, and cited by numerous scholars.

My motive in writing the article was to prove education is the best cure for prejudice. Having influenced others to respect the differences between entrepreneurs, whether that influence occurs in a classroom of boardroom, is rewarding for a business educator.

However, as a lawyer there is a different benefit: Better understand entrepreneurs. An attorney who understands a client’s motives is better positioned to help the client succeed. Not every entrepreneur wants a huge business, or to build a global empire. Some just want to make a difference in their communities. Some want a lifestyle business that serves their desires, not a business that consumes their lives. That’s why I start discussions with new entrepreneurs with a simple question “What do you want from this business?” Once that question is answered, it is easier to choose the best legal structure moving forward.

Beware of Counterfeiting

|

By some estimates, the cost to legitimate brands from counterfeiting is $1.8 Trillion annually. The cost of this intellectual property theft to American companies has been estimated at $600 Billion annually. Small Business owners are increasingly seeing their products knocked-off and sold on e-commerce platforms.

If you are a small business owner, it’s important to take the issue of counterfeiting seriously. Federal law provides remedies for victims. For example, if your registered trademark is violated — the remedy can be up to $150,000 per infringement. Courts can also order a defendant to pay your attorney’s fees; and pay punitive damages etc. 

If your company is a victim of counterfeiting, a business lawyer can help you understand your rights; and notify the proper authorities. Your lawyer will then likely connect you with a litigator. While it can be challenging to collect money from foreign manufacturers, plaintiffs may sue the US retailers and web-sites that facilitated the crime. Think about it: E-commerce billionaires, their employees and investors are profiting from the sale of counterfeit goods on their websites. Is that fair?

While buying counterfeit goods is not considered a crime, re-selling them is a crime. It’s a crime even if the re-seller does not know the goods are counterfeit. There is a Latin maxim: Ignorantia juris non excusat. Ignorance of the law is not an excuse. If you sell counterfeit goods, you’re breaking the law. Period.

Trademark and patent infringement are strict liability crimes. Intent does not matter. The act is what matters. A business owner has a responsibility to maintain the integrity of his or her supply chain. The criminal penalties for selling counterfeit goods can range up to $2,000,000 and 15 years in jail. Therefore, it’s a good idea to make sure anyone with purchase authority within your company knows the consequences of buying counterfeit goods.

Lastly, business owners have to understand: Counterfeiting is not a victim-less crime. Behind counterfeit goods there is nothing but greed, human suffering and environmental destruction. Nothing good comes from counterfeiting. It’s a scourge on society and commerce.

(c) Copyright 2019. Matthew G. Kenney

Hostile Workplaces

|

Learning the Law: Hostile Workplace Law.

A hostile workplace is one where discrimination or offensive comments (and/or actions) are based on race, religion, sex, sexual orientation, age, national origin, disability, equal pay, pregnancy, retaliation, or sexual harassment.

Employees are legally protected from harassment and/or discrimination, under both Florida and Federal law. Offensive comments need not be addressed to an individual. For example, a manager’s general comments about women, or a minority group, would likely constitute a hostile workplace. Quid pro quo (i.e. “this for that”) harassment is illegal, and occurs when an employment decision is based on the employees willingness, or unwillingness, to do something. Sexual harassment, for example, often involves quid pro quo harassment.

Hostile workplace law is fact specific, and there are many factors affecting a victim’s right to recovery. These include, the number of employees within the company, state and federal statutes of limitation; the position of the harasser in the company; notice to the employer etc.

Remedies for victims are set by state and federal law, and may include attorney’s fees and court costs. In Florida, the maximum recovery is $100.000. Under Federal law, the maximum recovery is $300,000. Recovery can also be non-monetary, such as a promotion; or elimination of the hostile behavior. The goal of the remedy is to place the victim in the situation he/she would be in, without the discrimination or harassment.

If you are experiencing harassment and/or discrimination at work, feel free to call 407-693-2050 for a complementary consultation.

Social Media

Linkedin