COVID-19 Cancellations: To Refund or Not to Refund?

If you are reading this, my guess is that you are a special event and hospitality industry pro, as well as a leader of your business. Like 99 percent of us at this time, you are faced with constant concerns from clients, one of which most likely involves them cancelling your service and requesting a refund due to COVID-19.

The very nature of our industry is that we are in service. We provide goods and services to people who are often having once-in-a-lifetime events, and always, always leaving our “business card” with the quality of work we do--which is not of the paper kind. Our legacy business card is how we behave with our clients during the pre-event, event and post-event process, and how we show manners and integrity. It also means that while we have contracts, policies and terms and conditions, most of us try and be a bit flexible under normal circumstances and do not insist on enforcing all the hard terms of our contract if we can.

Because that’s who we are. We ache to see our clients unhappy and we also fear how providing a boundary may tarnish our reputation in some regard. We are the “fixers,” the “magical make-everything-right wizards,” and it is in our very DNA to create happiness. So it is no surprise that having to make a decision that might not make our clients happy is extremely stressful and keeps many of us awake at night.

At no time have I ever seen the event and hospitality industry brought to its knees by event cancellation devastation and being torn apart wanting to serve their hurting customers but also needing to look out after their own livelihood--and in many cases, survival--as I have during COVID-19. It’s happened (and is happening) to all of us in some regard. No one is alone or untouched. This is now more than just not wanting a client upset with us. It’s about losing our homes, not being able to pay bills or put food on the table, and possible financial ruin. That’s heavy (real) stuff that can’t just be swept under the carpet in the name of hospitality and service.

MY APPROACH I have searched deep within me--heart and soul--and also put on my business hat and had to come up with a hybrid of business and heart for my clients and myself at this unprecedented time. Below is what I am doing with my event clients. But before you read on, a disclaimer:
A: You have to do what is right for you.
B: You cannot ask your clients or insist on a policy that you did not state up front for them at the beginning where there was a mutual agreement (i.e., check your contracts and terms and conditions).
C. This is not legal counsel--please ensure you run everything by your attorney if you’re not sure. I am merely sharing my situation as it pertains to me and what my journey was as it relates exclusively "to refund or not to refund” and the art of negotiation.

To be asked to issue a refund generally means they are cancelling. I’m presuming if you’re reaching this stage, you’ve done everything possible to postpone their date and explained that they will lose funds by cancelling versus postponing (again, depending on how your contract reads--I am proceeding assuming you have a clearly stated non-refundable policy in some form).

When clients insist on cancelling, here are seven considerations:

1 .Seek to focus on reconciling the relationship, not the issue, when navigating tense times and troubled waters with stressed customers. Keep this as your primary goal the entire time. It’s true: Some will never be satisfied until you give them everything they demand. But if you keep in mind your primary goal is to make this about building a relationship for the future in some capacity (working with them or referrals, etc.), it refocuses the goal from issue-based to relationship-based and makes it about something bigger that everyone can (generally) get on board with.

2. Acknowledge the human aspect of this to set the stage for a compassionate conversation. This is a horrible time for all of us. I tell them I’m so sorry that this is happening at this time for them, and I mean it. Empathy is the door-opener for productive working relationships--triply so in delicate emotional times like this. I also mention that this is perhaps the worst time in our industry in its history, and it has been flattened by the financial devastation. It’s important for them to be acknowledged--and it’s also important for them to understand that this has affected you and an entire worldwide industry, too. Sometimes being in hospitality, we can feel like a doormat and that it’s ok to just give up everything for someone else. It’s not. Would your family be OK if you said you decided to give everything to a client so they felt good about themselves, but you all needed to sleep on the street tonight? Didn’t think so.

3. Lay the foundation with the letter of the law in your contract (this is just explaining to them the strictest part of your contract and what it calls for). This is very intentional and sets the stage for perspective and context for your next step. In a recent letter to a client cancelling and requesting a refund, I explained that not only normally is my retainer fee non-refundable, but clients are subject to cancellation fees that go up the closer to the event date they cancel (I have a schedule of cancellation fees outlined in my terms and conditions). I cite my force majeure clause in my contract and explain that it is set there to protect me in the face of disasters such as this. That is exactly why I have that clause: to allow for that one in a million chance and to protect us.

So in my case, I spelled out that not only was my initial retainer non-refundable, but that based on when they were cancelling (which, by the way, is over the summer--they had the option to postpone and chose not to) a cancellation fee equal to $x is now in place on top of the non-refundable deposit. Laying this out sets the stage for the severity/seriousness of what they are legally obligated to pay you--even in a pandemic.

Note: This is my “secret sauce.” If you do not have a non-refundable clause plus cancellation fee schedule, go put one in right now for future bookings (have an attorney review it first, of course). This clause allows you to potentially still make the same estimated income you had counted on, or you can save use it as a negotiating nugget if needed with your client in the rare event they need to cancel.

4. Become the hero /heroine: Show clients how much of that “letter of the law” in your contract that you are willing to bend. Decide how much of that “letter of the law” in your contract you are going to insist on to look out after yourself, and how much you are willing to bend or make exceptions for. That is, look for as much as you can possibly give them while not neglecting yourself. Be as generous as you can. Remind them that while you could insist on the full letter of the law in your contract with your force majeure, which covers disasters, acts of God, pandemics, government shutdowns, etc., you really want to work with them as much as possible.

Remember, your “give” on this negotiation does not have to be monetary. Perhaps your policy is that you never allow clients to apply lost deposits to future dates/reschedules. Maybe you make an exception with that. Maybe you normally only allow reschedules but they must be done within three to six months; maybe in your “give,” you offer them up to a year (or no expiration date) to use that reschedule credit.

There are many ways to think creatively about your policies and how to bend them that will not cost you money but make you look like you are working with the client and their now-lost deposit/funds. Any inch or generosity you can give them shows good faith.

When they understand what you could be enforcing but are choosing to be somewhat flexible in any way you can, it creates trust and softens the situation. Remember what the force majeure clause does—it protects you against epic crises like this. Again, have an attorney review your verbiage if you are unsure.

For this client, I decided to look at the labor/work I had not done yet for their final eight weeks and pro-rated it against the cancellation fee, and allowed them to use it as a credit for a future event with me. This made me look like I was doing them a huge favor--and I was. But I was also making sure I had what I needed to meet my obligations.

5. Make it personal--for them and for you. I also remind clients that I have bills to pay, a family to support, and many other obligations riding on the income and payment schedule we had agreed to.

Customers sometimes think that we are all multi-million-dollar companies, and an occasional $10,000 refund here and there won’t hurt us. But I like to gently remind them that I am going to work with them as much as I can right now during this pandemic--even though I am not required to and protected in my contract for extreme times like these--and I ask that they work with me, too.

It’s not a one-way street at times like this. Everyone needs to work together, and no one side should walk away having all the win, leaving the other side 100 percent devastated. I also remind them that (in their unique case), they had the choice to postpone (in which case I can apply their funds to a future date/service with me) and that they have chosen to cancel, which leaves this a no-win for anyone and is not entirely necessary, really, so I am being left with no choice but to enforce terms of the contract at this time, since I now am out revenue for that date.

6. Spell out their next step and options clearly. Once you’ve listed how much you are willing to do for clients, make sure it is in writing and give them an action item with a deadline date. For my clients, I came up with two options from which they had to choose. Both involved me bending my cancellation fee a bit but pro-rating the amount of work I had not done yet to give them a credit, rather than just sock them with nonrefundable plus additional fees. Not only can I keep my non-refundable initial retainer, but I get a portion of my cancellation fee on top of that in the one option, and I get the entire fee in the other option, while offering them a credit to future services. I asked them to please make a decision on which one they chose by a dedicated date and time.

7. Be gracious if it kills you. Everything you put in writing may be shared or forwarded--or used in court at some point. You want to make sure everything you say is professional, sounds reasonable if another party reads it, and, most importantly, continues your branding. Yes--your branding is even in how you handle business and legal transactions. Remember, this is a stressful time for everyone, and people who are feeling out of control often act out of control, including poor word choices and behavior. Always err on the side of being polite. Be direct, but be polite always.

Do not underestimate the importance of looking out after yourself, too. COVID-19 has devastated our clients, certainly, and it has certainly devastated us and our industry. So my question if anyone challenges you is this: Whose fault between both of you is it that COVID-19 happened? That is, why should either of you have to pay the price of COVID-19? It’s the fault of neither one of you. By showing good faith to give them as much as you can to bend some of your policies (again, this does not have to equal returning money necessarily), you are showing them that we all have to work together here. We all have to bend a bit.

With rescheduling and postponement as an option for events, when someone chooses to cancel (and wasn’t forced to by the law), you definitely have more negotiating power, as well as the opportunity to potentially reconcile the working relationship.

Don’t forget those force majeure clauses which spell out acts of God, pandemics, government shutdowns, etc., are there for that one in a million chance you need to be protected. Well, that time is here and now. Use it for your benefit--but use it with grace with an effort to bend as much as you can. Everyone--even customers--must work together right now.

Remember, you are not alone and to reach out to colleagues for ideas and support, too. We will get through this.

Kerry Lee Doehr is CEO/founder of event planning business Santa Barbara Wine Country Weddings and Events, as well as Engaging Inspiration, a consultancy dedicated to leadership, communications and education for the special event and hospitality industry. She is committed to progress in the industry that goes beyond trend and design, saying, "Who we are and how we handle ourselves ethically is more of a barometer to business longevity and branding than all the money in the world spent on advertising."