Employment Contract Rights and COVID-19

April 21, 2020

To say that a large portion of the American workforce is facing uncertainty is an understatement. Reports of furloughs, pay cuts, and layoffs attributed to the COVID-19 coronavirus pandemic make the news regularly. Many employees who are continuing to work in essential services are being required to go above and beyond their regular job responsibilities in almost unprecedented ways or to change their duties completely.

When an employee has a contract, these ostensibly short-term changes may have long-term consequences. Any employee contemplating a change to their employment agreement in light of COVID-19 needs to know their rights and their options before agreeing to any new deal terms.

What is an employment agreement?

An employment agreement is a legally binding contract that governs the relationship between an employee, typically an executive or professional, and their employer. Usually the result of pre-employment negotiations, the agreement defines the material terms of employment, such as duration, position, duties, reporting line, and compensation, including salary, benefits, bonuses and incentive payments, and equity compensation.

Can an employment contract agreement be changed or terminated?

If both parties want to modify the contract, they can usually do so. The employee and employer may wish to modify the employee’s schedule to allow for more flexibility in the employee’s duties. For instance, a physician may be willing to take on more hazardous responsibilities to help with COVID-19 patients, but may want something of value in return when the pandemic is over, such as a reduction in the restrictive covenants in their agreement. Alternatively, an employee may agree to temporarily reduce their schedule to devote more time to responsibilities at home during the pandemic.

No matter the type of the new arrangements, the amendment should clearly define the new terms and specify whether the original terms will resume at an agreed-upon point or whether the changes will remain in effect throughout the remainder of the contract period. Employees should consult with counsel to ensure that their rights going forward are sufficiently protected in connection with any change to their contract terms.

If, however, the parties can’t agree to modified terms, typically, the original terms remain in effect; unilateral changes are usually not binding. Thus, if an employment contract guarantees an employee a minimum salary and employment for a finite period of time, an employer’s unilateral decision to furlough the employee without pay or terminate their employment during that period can constitute a breach of the employment agreement. Depending on state law and contract language, however, there can be exceptions. Thus, it is important to consult with counsel whenever you are confronted with an unnegotiated change in your employment.

When disaster strikes.

When an employer cannot comply with its contractual obligations in a crisis or disaster, the employer may attempt to invoke several different legal theories to avoid a claim by the employee for breach of contract. It is important for employees to consult with counsel to assess whether they have any contract claims and whether any of these defenses actually apply.

A force majeure clause, for instance, generally excuses a party’s non-performance only where performance was impossible because of unforeseen, and typically extreme, events outside the parties’ control, such as war, “acts of God,” and natural disasters.

There is no implied right of protection by a force majeure clause; a force majeure event can only potentially excuse performance if the contract actually has a force majeure clause.

Where the parties have no force majeure or other termination clause, a party who has breached its obligations may claim that it was legally “impossible” to perform the contract. Legal “impossibility,” as the name suggests, is a high standard. Usually, a company’s ceasing operations, financial difficulties, or insolvency will not suffice to justify its breach. Further, another state law doctrine, frustration of purpose, may be cited to excuse a party’s breach, but this too is a narrow rule.

Given the varying rules and doctrines governing contract performance during a pandemic, employees with employment agreements should consult with experienced counsel to try to ascertain their rights and try to protect themselves and their livelihoods.

Associate attorney Batool Banker contributed to this article.

(*Prior results do not guarantee a similar outcome.)