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The Top Questions and Client Scenarios Stemming From Coronavirus
A lot has happened the last few weeks and everything seems to be changing a mile-a-minute. Event industry professionals are trying to adapt and deal with each client situation as it comes. As more and more rescheduling and cancellation of events occur, we here at The Legal Paige have been fielding hundreds of questions over the past 14 days. I’ve noticed a few questions pop up OFTEN, which is why I thought it best to put together my answers all in a row for you! That way, you don’t have to mull around in Facebook groups and can get some of your questions answered ASAP.
Top Legal Questions:
1. What is Force Majeure? I still don’t understand it.
Force Majeure is a clause that describes situations and unforeseeable circumstances in which it is IMPOSSIBLE for either party to perform its obligations under the contract, and then limits the impacted party’s liability for not performing under those conditions.
These clauses vary from contract to contract due so you want to make sure you understand the express language in YOUR existing client contracts. One big issue, is that many Force Majeure clauses do not specifically list a global “pandemic” as a Force Majeure event.
However, even if a "global pandemic" is not listed, what’s currently happening with stay-at-home orders and massive travel restrictions definitely does makes it IMPOSSIBLE to host an event/wedding. And, most importantly, the biggest issue is that most Force Majeure clauses say absolutely nothing regarding the fees paid under the contract by the client and what happens with all retainers, past payments, and future payments. Thus, event industry professionals are left trying to decipher the best way to reschedule or cancel their services without facing legal liability related to the fees paid by the client or the possibility of having to give a full refund.
2. Can I keep my retainer under a Force Majeure Event?
This is going to depend entirely on three things: (1) the Force Majeure Clause wording in your existing contract; (2) the Fee and Retainer Clause wording in your existing contract; (3) the Cancellation/Rescheduling Clause wording in your existing contract; (4) whether or not at the time of invoking a Force Majeure Event you’ve performed services above and beyond the amount of the retainer; and (5) the mutual resolution you can make with your client.
In most cases, contracts state that the “retainer” is non-refundable somewhere in the fee clause and/or or cancellation clause. If you have that wording, that's a good first step to keeping your retainer. Next, you need to try your HARDEST to “cure performance” due to the "Force Majeure event"--ahem, Coronavirus--that has impacted your ability to perform services. This means working your serious fanny off through communicating with your clients about rescheduling the event or performing your services in some fashion at a later date. You can of course be creative here, but the goal is to be willing to perform services paid for sometime in the future. You want to work towards a mutual agreement with your clients regarding how they can utilize the services they’ve paid for. My point here is to refrain from saying that you are just keeping the retainer outright. It's absolutely crucial that you evidence through email communication that you are trying your absolute hardest to perform your services at a later date!
Finally, if you keep having a client pushing for a full refund without taking any responsibility on their part to also try and cure performance (legally speaking, they also have to show that they are trying to reschedule and uphold what they signed onto under the contract since BOTH parties are impacted by Coronavirus), you are going to be stuck negotiating what to do with the retainer. Even if your contract says the retainer is “non-refundable” is it really worth your time and money spent on legal fees to argue with your client over whether that $1500 retainer is actually non-refundable. Probably not. Better to just come to a mutual agreement regarding what you will do with the retainer. Best case scenario would be to refund a portion of the retainer to please your clients and get them off your back (and of course document that resolution with signatures). Worst case scenario would be about 10-15 emails and phone calls later with the client holding their ground and threatening a lawsuit, which is when you will either need to give a full refund or be ready for them to come after you down the road. That is not a situation where I can wholeheartedly say “x” is the correct answer. It will vary greatly depending on how legit your existing contract is and whether you are financially and emotionally okay with going into a legal battle, so to speak. MOST of the people I consult with would rather pay up than get into a lawsuit. Lawsuits are expensive, emotionally draining, and wreak havoc on your business and personal life. There are very few circumstances where I think going to suit for a $1500-$3000 retainer would be worth it. You have to make that decision for yourself.
3. What if your clients want to reschedule but don’t have a date?
If your clients determine that they want to reschedule and don’t yet have a new date set, AND your clients agree that all fees paid for your services thus far will be transferred to the new date, then you are going to want to have your clients sign a rescheduling contract.
We named it a “rescheduling contract” for simplicity purposes. But, its basically a rescheduling/termination contract. It allows you as the service provider to cancel your existing contract with your clients, be released from all performance obligations under that existing contract, and explains to your clients what exactly you are doing with the fees they’ve paid you. It's beyond helpful for clients to know that you are holding their fees paid as credit for “x” amount of time and gives them solace that you are doing just that. (Trust me, right now with so many financial stressors on people, your clients will be thankful that your business is being professional and upfront to ensure their payments are taken care of.) Then, once your clients officially have their new date set (sometimes it takes a bit of time to work with the previous venue or find a new venue), you will send them a new services contract essentially rebooking your services for “x” date and using “x” amount of money they have on credit for your services.
***One extra perk to executing a rescheduling contract is that it allows you to adjust and update your existing contract! Many people need to do a little overhaul on their existing contract, so this gives you that ability without any headache. Your clients will be just fine signing onto an updated contract because businesses update contracts all the time and it's very customary. Legitimately do not worry about this process. You are a business owner and are allowed to update your contracts at any time.
4. What if your clients want to cancel and receive a full refund?
If your clients do decide to cancel, your ability to refund them is going to depend entirely on the cancellation/rescheduling clauses in your existing contract, as well as, other factors such as how far out you are from the event date, how much of the contract has been fulfilled, and how many services you have provided for your client (engagement session, bridal session, planning, emailing, paying out contractors/second shooters/associates, etc.).
See above under Question 2 for the best steps to approach a situation where all the clients want to do is cancel. My biggest suggestion is don’t immediately talk about a refund. Try your best to only discuss the possibility of rescheduling or keeping their fees paid on as a credit for some other type of services you can offer within a certain period of time. It's all about working out a COMPROMISE with your clients!
At the end of the day it may not be a win-win for both parties, but a little loss on your part and a little loss on theirs is much better than a full-blown lawsuit. (Also, just fyi, this is literally what would happen if a lawsuit happened and lawyers got involved. They would work toward negotiating a settlement from the get-go to avoid unnecessary litigation and legal costs. Hence… why I suggest taking it upon yourself to negotiate with your clients before lawyers even have to get involved.)
5. Are you legally obligated to refund everything if your clients want to terminate the contract?
This answer is ALSO going to depend entirely on what you have in your EXISTING contract, and the laws and regulations in your state. The big thing to know is that there is no singular law that says you absolutely have to refund your retainer/deposit/reservation fee. (Many people have been saying that in Facebook groups and it's simply not true.)
Here’s what you need to consider. If your cancellation and rescheduling clauses state that your retainer is non-refundable then you may be able to keep the retainer payment. If you have performed services already for your client and you have proof of those services (email documentation, evidence of services performed, cost of goods sold, etc), then that is further proof you should be able to keep the retainer. Also, if you have proof you performed services that were beyond the client’s retainer payment, you may also be entitled to some additional compensation for your services.
I’m stressing the may here because this is a tricky question that is entirely fact specific to each situation. I HIGHLY suggest if you are in this position to contact a local attorney to review your contract with you and discuss your options. But, again, if you are not wanting to contact an attorney or don’t have the financial ability to do that, I get it. This is why you have to take a good hard look at the situation and see if you can find some mutual resolution with your client (even if that means refunding a portion of the retainer even though you really don’t want to).
6. What type of document do you sign if your clients are rescheduling?
If your clients are rescheduling you can either add a contract addendum to your existing contract to reschedule the date under the current contract terms, OR you can cancel the existing contract by signing a rescheduling contract, hold fees paid on as credit, and then agree to reschedule your services to a new future date and sign a new services contract. I recommend the latter, just because a full rescheduling contract will void the previous contract and allow you to update your existing contract.
In sum, guys I’m sure you have many more questions about contracts, cancellations, rescheduling, or anything else to do with all this craziness going on. I’m going to be going Live in my Facebook Community several times this week to go more in depth on some of these topics and try to get as much information out there as I can.
As an event industry professional myself (and a bride-to-be getting married this year), I’m right in this with you guys! This is why my team and I are working SO hard to produce these resources for you.
Stay strong and stand up for yourself as a business owner. But also be gentle, kind, and understanding with your clients. No one was ready for the impact of Coronavirus and no one has any idea how to navigate all of this. There is quite literally no precedent and we are all in it together. Ultimately, try to come to a mutual resolution that alleviates the need for legal professionals or a potential lawsuit in the future. That’s my biggest suggestion to you at this time!
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THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract.
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