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‘Termination’ vs. ‘Cancellation’: Crucial Clauses for Event Planners
With the coronavirus upending special events, expert planner and lecturer Joyce Scardina Becker offers tips for navigating these uncharted waters.
5 Min Read
I have been the director and instructor for the Wedding Planner Certificate Program for the past 23 years (originally at San Francisco State University, and, since 2003, at California State University East Bay). Within the curriculum of this program is approximately eight hours of hospitality contract law. So I would like to offer some observations about contract clauses that are relevant to the difficult time we are now living in.
Overall, there are two different sets of circumstances that can result in the cessation of an event contract prior to the event date. And there should be two separate and distinct contract clauses to cover each of these sets of circumstances. If a service provider tries to cover all of the circumstances associated with COVID-19 in a single contract provision, the service provider could be inadequately protected. Here are the two types of clauses and circumstances:
Termination: This clause allows the contract parties (i.e., the service provider and the client) to terminate their obligations if either party’s performance is prevented or made impossible, either by acts of God (a.k.a. force majeure events) or by acts of third parties (such as strikes, terrorist acts or government orders). This clause allows the parties to end the contract without further liability. Unless something otherwise is specifically stated in the contract, a termination would require the service provider to return all payments made to the client.
But, a well-written termination clause should enable the service provider who has performed work in advance of the event to be compensated for all their work done up to the time of the terminating circumstance. (This is especially important for planners, who do so much work in advance of the event.)
Cancellation: This clause applies if one party wants to get out of the contract. (In about 99.9 percent of the cases, it is the client who chooses to cancel, because in general, the service provider should always be ready, willing and able to continue with the contract.) The party wishing to cancel is in breach of contract and liable for damages--if the nature of the damages has been properly specified in the contract.
The appropriate type of damages to specify in a cancellation clause are “liquidated damages,” which are an assessment of the financial loss that would be incurred as a result of the cancellation. The word “penalty” should never be used in a cancellation clause because penalties may not be legally enforceable.
Liquidated damages are typically written as a sliding scale, where they increase as the event date draws nearer. This reflects an obvious reality--the closer to the event date that the contract is cancelled, the less likely the service provider will be able to secure another booking for that date.
So what does all of this contractual gobbledygook really mean when it comes to the current coronavirus crisis?
First, the pandemic is not necessarily a force majeure event of and by itself. Instead, a government order to shelter-in-place is definitely a third-party action that can result in the termination of a contract. So, any events that are or were scheduled to take place during the time period of these government orders would be covered under a termination clause. And because it’s nobody’s fault, the client may be entitled to a refund of payments made. But, if the termination clause is written where the service provider is to be compensated for work performed prior to termination, the value of this work can be deducted from the refund.
The more challenging situation involves events that are scheduled to take place several weeks and months from now. In these cases, it is unknown and unknowable whether a government order will still be in place on the event date. So at this time, we simply don’t know which contact clause--termination or cancellation--will actually be applicable to the event.
Finally, I wanted to make a couple of points about how service providers (especially planners) might want to modify their contracts and procedures going forward, given what we have learned so far during this crisis:
• Make sure your contract payment terms are structured so that you are fully compensated at all times for the work that you are performing. For example, if you have done 50 percent of the work for an event, you should have already received at least 50 percent of the contract price from the client. If you have only received 25 percent of the payments, you could be in big financial trouble if the event is suddenly terminated by a government order.
Also, in case the client decides to cancel the event, it’s a good idea to set your payment amounts to exceed the amount of liquidated damages that you would be entitled to collect, so that you don’t have to ask the client for any additional money upon cancellation. There is an old saying that applies in these situations: Possession is nine-tenths of the law.
• Document the time you spend and the work you perform on each event. Just like a lawyer, I recommend keeping a detailed daily log of your tasks and time--even if we don’t bill the way lawyers do. If the event needs to be terminated and you have a well-written termination clause, this log will give you a solid basis for keeping an appropriate amount of compensation for the work you have performed. Another benefit of keeping the log is that when the event is over, you will have good data on the amount of time it takes for you to produce this kind of event, which in turn will help you to price out future proposals more accurately.
Joyce Scardina Becker, CMP, is the founding president of the Wedding International Professionals Association. Since 1997, she has been the founding director and instructor of the Wedding Planner Certificate Program, now offered in both a classroom and online format at California State University East Bay. Her work as president of Events of Distinction in San Francisco has garnered 33 Special Events Gala Award and Esprit Award nominations and 16 awards.
