This clause treats supply chain disruptions as force majeure events that excuse performance under a restrictive covenant agreement. Restrictive covenants typically limit what a party can do—for example, non-compete clauses, non-solicitation agreements, or exclusivity requirements that restrict a business's freedom to operate. By adding supply chain disruption as a force majeure trigger, this clause allows a party to temporarily suspend compliance with those restrictions if their supply chain breaks down due to unforeseen events (factory closures, shipping delays, supplier bankruptcies, port strikes, etc.). For instance, a company bound by an exclusivity agreement might argue it can source from competing suppliers if its primary supplier becomes unavailable due to force majeure. This clause essentially creates a safety valve: restrictive covenants remain in place during normal operations, but yield when external supply shocks make compliance impossible or commercially unreasonable.
The danger here is ambiguity and potential abuse. "Supply chain disruption" is vague—does it mean any delay, or only complete failure? How long can disruption last before the covenant is no longer excused? A party might claim force majeure too readily to escape restrictive obligations, while the other party loses the benefit of the bargain. Courts are skeptical of force majeure claims in restrictive covenant contexts because these covenants are meant to protect legitimate business interests, and allowing easy escape undermines their purpose.
Narrow this clause significantly by defining "supply chain disruption" with specificity: require that the disruption affect a material percentage of supply (e.g., 50%+), last for a minimum duration (e.g., 30+ consecutive days), and be independently verified (e.g., documented by the supplier or third-party sources). Include a requirement that the excused party must actively seek alternative suppliers and notify the other party within a defined timeframe. Limit the duration of the excuse (e.g., 90 days maximum) and require the party to resume full compliance once supply is restored. Consider whether the force majeure excuse applies to all restrictive covenants or only certain ones (e.g., exclusivity but not non-compete).
Frequently Asked Questions
What does this clause mean in simple terms?
This clause treats supply chain disruptions as force majeure events that excuse performance under a restrictive covenant agreement. Restrictive covenants typically limit what a party can do—for example, non-compete clauses, non-solicitation agreements, or exclusivity requirements that restrict a business's freedom to operate.
Why should I care about this clause?
By adding supply chain disruption as a force majeure trigger, this clause allows a party to temporarily suspend compliance with those restrictions if their supply chain breaks down due to unforeseen events (factory closures, shipping delays, supplier bankruptcies, port strikes, etc.). For instance, a company bound by an exclusivity agreement might argue it can source from competing suppliers if its primary supplier becomes unavailable due to force majeure.
What are my options?
This clause essentially creates a safety valve: restrictive covenants remain in place during normal operations, but yield when external supply shocks make compliance impossible or commercially unreasonable. The danger here is ambiguity and potential abuse.
How does this affect small businesses?
"Supply chain disruption" is vague—does it mean any delay, or only complete failure? How long can disruption last before the covenant is no longer excused?