Contract Labor, Services Complicate Corporate Response to Virus

Companies relying on contracted labor and services instead of employees may have less flexibility to deal with changes, slowdowns, and closures related to the new coronavirus, some management-side attorneys said.

“An employer can just send a memo and inform employees of a new work arrangement, like teleworking,” said Russell Hollrah, a lawyer who advises companies on contingent worker issues. “By contrast, a company with independent contractors cannot do that. What the company has to do is look to the contract and evaluate options.”

Responding to the threat of regional or nationwide outbreaks of Covid-19, the disease caused by the novel coronavirus, could spark legal disputes as companies try to navigate contractual relationships with independent contractors and other businesses. Many companies have turned to contracted labor and services in part to avoid the costs that come with directly employing workers. Tech giant Amazon.com Inc., which uses contracted warehouse workers, drivers, and coders, is a high-profile example of the business community’s affinity for contracting.

While some companies are voluntarily scaling back or requiring telework, those in other industries, like hospitality, are facing mandatory closures.

Parties typically look to “force majeure” provisions when they have to take extreme steps in the face of natural disasters and other unforeseen emergencies, lawyers said. Those clauses cover what happens when unanticipated events prevent a party from fulfilling contractual obligations.

Litigation is often necessary to resolve disputes over the scope of force majeure provisions in contracts with service companies, said business attorney Andrew Weisblatt of the Weisblatt Law Firm. Those legal battles are partially the result of clauses that aren’t as detailed as they should be, he said.

“There are force majeure provisions in almost every contract I write,” Weisblatt said. “But it’s one of the first areas that gets pared down by lawyers when clients say, ‘this is too long, my customers won’t sign it.’”

Other Litigation Options

Yet many—perhaps most—labor contracting agreements don’t include force majeure provisions, attorney Jeffrey Polsky said via email.

Nevertheless, language in indemnification clauses that insulate parties from consequences entirely outside of their control could come into play, said Polsky, co-chair of Fox Rothschild’s labor and employment department. Another factor may be the “act-of-God” affirmative defense that some jurisdictions allow in response to breach of contract claims, he said.

“I think it’s a legitimate concern and one that could be litigated extensively in the months and years to come,” Polsky said.

Given the unprecedented nature of the coronavirus threat, businesses that need to break contracts without force majeure clauses potentially can raise arguments that being held to their terms would amount to unjust enrichment or a violation of public policy, said Jeffrey Risch, who heads SmithAmundsen’s labor and employment practice.

The extent to which government mandates the shutdown of business activities is another factor courts would likely weigh, employment attorney Lois Kosch of Wilson Turner Kosmo said via email.

“We’re obviously in uncharted territory here,” she said.