Following President Biden’s Executive Order mandating vaccination for US federal workers on 9th September, could a COVID clause become a standard provision in commercial contracts in the future?
The law is forever adapting and must remain current to be effective. A good lawyer thinks about what could go wrong and then looks at how to protect against those risks. It is not always an easy task to foresee risks that do not yet exist.
The pandemic has caused disputes that prior to December 2019 arguably would have been unforeseeable. The idea of a global pandemic is not so far-fetched to imagine now that it has happened, but the extent of the virus was completely unexpected by society before it had happened.
We have already seen adaptions to force majeure and Material Adverse Change clauses in contracts since the outbreak of COVID, to widen the definition of exceptional circumstances and accommodate for pandemics that may happen in the future, but of course as the saying goes, hindsight is a wonderful thing, and these new additions to contractual exception clauses will not apply to contracts pre-dating the virus. The general consensus as to whether the pandemic is considered an “Act of God”, the classic force majeure event, seems to suggest that it is not. Either way, there will continue to be a big fall-out over contractual interpretation and questions over insurability that are not likely to be settled for years to come.
In one case involving the pre-pandemic acquisition of Victoria’s Secret, contracts were signed on 20 February 2020. Following the effect of COVID on the economy becoming apparent, the buyer sought to pull out of its deal given that Victoria Secret’s sales largely relied upon its customers being able to visit its retail shops in person, which due to the pandemic would no longer be possible. However, unfortunately for the buyer in that case, a savvy lawyer for the seller had opted to include a number of “exception clauses” within the contract’s force majeure clause, including one for “global pandemics” (a piece of drafting that was, perhaps unsurprisingly at the time, not challenged by the other side’s solicitors), which prevented the buyer from withdrawing.
It is clear to see how COVID will have a lasting impact on the legal landscape and shape the attitudes of legislators and private lawyers toward drafting and foreseeable risk management. Expect terms and conditions to become that little bit longer.
On 09 September 2021, President Joe Biden issued an Executive Order for the Mandatory Coronavirus Disease 2019 Vaccination for Federal Employees, making it mandatory that all federal workers be vaccinated for COVID-19, stating “Each agency shall implement, to the extent consistent with applicable law, a program to require COVID-19 vaccination for all of its Federal employees, with exceptions only as required by law.“ (Sec., 2).
In a country were over 80 million people are yet to be vaccinated, the Order may be a tall one and lead to controversy in the months to come. Politics aside, what is notable is that on the same day a second Order was made on Ensuring Adequate COVID safety protocols for Federal Contractors, which extends to any contractor entering a new contract for services, construction or leasehold property interests with the US government (Sec 5.a(i)). This Executive Order states: “This order promotes economy and efficiency in Federal procurement by ensuring that the parties that contract with the Federal Government provide adequate COVID-19 safeguards to their workers performing on or in connection with a Federal Government contract or contract-like instrument as described in section 5(a) of this order.”
The effect of the Order pushes the mandatory COVID preventative measures beyond Federal Government and into the private sector. Most obviously, it will apply to the large government contractor companies such as defence contractors like Lockheed Martin and Boeing, and also to any general public and private businesses that are to have contracts through tender with the federal government going forward, meaning the mandatory Order will apply to the employees of those companies also, which is where it becomes far-reaching.
Section 2 of the Executive Order goes further still, providing for “Adequate COVID-19 Safety Protocols for Federal Contractors and Subcontractors”. It orders that Contractors shall “ensure that contracts […] include a clause that the contractor and any subcontractors (at any tier) shall incorporate into lower-tier subcontracts (Sec., 2)”, meaning any company that is subcontracted by an applicable government contractor must also commit itself to enforce these measures in order to be eligible to do business with the contractor company above.
The implications of these two Executive Orders will be far and wide. Politically speaking, they may well amount to a back-door policy enabling the government to mandate its citizens (or at least a large proportion of USA’s workforce) to adhere to the government’s COVID rules that they would not be able to pass through Congress. Legally speaking, it necessitates the need for new COVID preventative clauses to be written into relevant contracts and prevents companies that are not willing to adopt such measures from doing business relating to the public sector.
If the large government contractors take up the mantle to comply with the government’s measures, which they will have to do, and in turn implement their own rules in compliance, then this will trickle down to the private companies that they deal with below who will also be required to enforce such measures. It will be very interesting to see the consequences that flow from this. For a start, it will likely give rise to employee disputes and questions over the power of employers to force certain rules upon its staff which will come before the courts.
If the larger private contractors adopt a standard COVID preventative clause into their commercial contracts, it is not a big step to then see a boilerplate of this clause appearing in more everyday commercial contracts both in and outside the US. The Executive Order does not apply to employees who perform work outside the US (Sec 5(b)(iv)), but that is only the Executive Order; once the contractors comply with the Executive Order, then the ambit of those measures and who they apply to falls outside the Executive Order and is up to the private companies who are able to insist on the adoption of its measures and inclusion of a boilerplate contract clause by all companies that it deals with, both in US and overseas.
At this stage we do not know how far the impact of this Executive Order will go or whether the private sector will merely pay lip-service to it in order to continue to secure government contracts. From the attitudes of large private sector companies to date, there is no reason to expect this, but perhaps a softer attitude will be more prevalent amongst smaller more personal subcontractor companies on the ground level. If the large private contractors get behind the Order, then it is possible that we will start to see a standard boilerplate COVID preventative clause in B2B contracts that stipulates that each party agrees to adopt COVID related preventative measures within its own workplace and signing up to a set code of conduct, failing which those companies would find themselves unable from doing business with the larger contractors in the market.
Sources:
https://www.legalcheek.com/2020/05/did-davis-polk-predict-the-pandemic/
https://www.nytimes.com/2020/04/29/business/victorias-secret-sycamore-coronavirus.html
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