Contract Law Responses to the Covid-19 Pandemic: A Functional and Comparative Approach

The rapidly spreading coronavirus (Covid-19) outbreak, which was declared a pandemic by the World Health Organization on 11 March 2020, all of a sudden changed everyday life all over Europe and the world. Under these extraordinary circumstances, a wide range of issues concerning the law of contracts are becoming particularly important, such as whether existing contracts are still valid and binding, or whether performance may be suspended or its acceptance refused. Many European countries have implemented significant and unprecedented measures during the coronavirus pandemic, both during the lockdown period and in the subsequent reopening of the economy. Against this backdrop, the more fundamental question arises whether and to what extent we need an extraordinary law of contracts in times of pandemic.

In a recent article forthcoming in the European Business Law Review, I draw on five important civil law jurisdictions (Germany, Austria, Switzerland, France, Italy) and provide for an analysis and discussion of the various extraordinary measures taken by European governments putting them into perspective. These measures are examined not only with regard to business enterprises, customers and other contracting parties, but also and in particular in relation to commercial, consumer, employment and lease contracts. From a methodological perspective, I use a functional and comparative approach to elaborate on how contract law should respond to the current crisis.

On the one hand, the article seeks to provide a factual analysis of what changed in response to Covid-19. Broadly speaking, the extraordinary measures for business enterprises include both financial support and certain changes in the applicable law. The financial support mainly intends to ensure liquidity of funds, but in some cases it may also replace lost profits. The 'law changes' include, inter alia, temporary modifications or suspensions of certain provisions from insolvency law, but also a standstill of procedural and/or substantive time limits.

The extraordinary measures for customers are largely contract-related. Such measures introduce not only a moratorium for performance and termination of long-term contracts covering basic needs and consumer credits, but also voucher solutions for leisure events and facilities as well as travel tickets and packages. Other measures include the standstill of procedural and/or substantive time limits, the exclusion of contractual remedies and a temporary standstill in debt collection for travel agencies.

The extraordinary measures for employers and employees are numerous and concern various issues. The most important measure is arguably the facilitation and extension of state-sponsored short-time work programmes (so called 'furlough schemes'). Other measures, introduced post-lockdown, concern worker protection.

The extraordinary measures for lessors and lessees vary greatly from jurisdiction to jurisdiction, but usually include a moratorium prohibiting the termination of such contracts. The biggest bone of contention concerns rent for commercial premises, especially during lockdown.

On the other hand, the article seeks to provide a normative legal analysis. The preceding part shows that contracts may be affected both directly and indirectly by Covid-19 related measures. Especially permanent contracts are at the same time directly affected by overriding provisions, if applicable, and indirectly through other measures.

From an institutional economics perspective, the main issue with this architecture is that the same problems are addressed through a plethora of regulatory measures at different levels and for different actors, which may inevitably lead to an overlap of various protection and support measures. In some cases, contracting parties may thus be better off during the crisis than in normal times.

From a legal theory perspective, it is particularly interesting to note that pandemic support measures might have a certain spill-over effect on contract law. Both business enterprises and customers, who directly or indirectly benefit from any extraordinary measures outlined above, should arguably not be able to release themselves from their obligations under a contract as easily as if no such measures would have been put in place or contracting parties make no use of them.

The article concludes that the question of how contract law should respond to the current crisis must be answered in a differentiated manner. For commercial contracts, preservation against excessive disruption in the near term should come first, followed by a facilitation for significant adjustment in the longer term. With regard to consumer contracts, a distinction must be made between debt contracts and other types of consumption. While the former are open to government intervention, the latter are arguably not. Both lease and employment contracts pose particular problems. At first glance, it seems quite obvious to summarise these situations under the same heading. On a closer look, however, important differences emerge that need to be considered.

Valentin Jentsch is a Post-Doctoral Research Associate at the University of Zurich.