Exculpatory Agreements and COVID-19: Mitigating The Risks of Reopening

Category: Commercial Litigation
June 4, 2020 — The phased reopening of New York City and the surrounding boroughs raises a plethora of issues and considerations for stores, restaurants, bars, and other customer-facing businesses planning to operate during the ongoing pandemic.  Chief among those concerns is likely potential liability to customers who may be exposed to COVID-19 at your place of business.  It is not hard to imagine endless scenarios involving business patronage and sudden onset of COVID-19 symptoms, so how can your business adequately protect itself from an onslaught of lawsuits related to the novel virus?  Exculpatory agreements.

Exculpatory Agreements Explained

Exculpatory agreements are contracts that limit the legal duties owed by one party to the other.  In the case of customer-facing businesses, exculpatory agreements may be used to limit liabilities to customers by having customers waive their rights to sue the business on certain grounds.  Although it is essential for business to take the necessary and proper steps to protect their patrons, it is equally essential for business owners to mitigate their liabilities in such uncertain times.  Utilizing an arbitration clause or class action waiver in an exculpatory agreement could further fortify protections against COVID-19 related liabilities.  In essence, the goal of utilizing exculpatory agreements is to prevent rebuilding businesses from the burden of extensive litigation costs for perceived negligence or circumstances out of the business’s control.

Although insisting that patrons sign waivers before dining at a restaurant or shopping at a store may seem to be extraordinary, consumers and business owners alike must recognize that the risk of returning to non-essential daily activities cannot be a one-way street.

Exculpatory Agreements in New York

In New York, the ability to enforce exculpatory agreements depends on the nature of the business.  Waiver of rights will always be met with close judicial scrutiny, but nonessential businesses should be able to enforce clear and unambiguous exculpatory agreements that protect them from liability for negligence, but not for gross negligence, recklessness, or more serious deviations from their standard duty of care.  New York courts have found that such exculpatory agreements will be upheld in commercial settings and for nonessential social activities that “are freely engaged in by consenting parties.” Rosenthal v. Bologna, 211 A.D.2d 436 (N.Y. Sup. Ct. 1995).  Even so, New York public policy considerations may be used to invalidate exculpatory agreements depending on the parties’ relationship, such as with common carriers, utility companies, employer-employee relations, or hospice care, or if the agreement runs afoul of New York’s interest in the health and welfare of its citizens.

Additionally, New York statutes prohibit liability waivers in the context of landlords, caterers, building service or maintenance contractors, maintenance of parking garages, pools, gyms, or places of public amusement or recreation.  N.Y. CLS Gen Oblig. Law § 5-321 et. seq.  Whether a restaurant or retail store can be considered a place of public amusement or recreation is unclear at this time.  Another point of caution concerns businesses geared toward minors because minors are generally able to void any contract they enter into and courts are somewhat reluctant to enforce agreements waiving a minor’s rights when parents sign on their behalf.

Learn how CASTAYBERT PLLC can support your exculpatory agreement needs here.

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