By Mauro Barsi, EMA Employment Relations Consultant
Every now and then an employer finds themselves dealing with a situation that no policy manual, workflow chart or management meeting ever anticipated.
An earthquake cuts off access to your workplace. A cyclone destroys part of your site. A fire shuts down a building indefinitely. A pandemic closes borders and disrupts supply chains.
When events like these occur, two legal concepts suddenly become very important: force majeure and frustration of contract.
They sound similar and they often arise from the same sort of disaster. But they operate very differently.
The easiest way to remember the difference is this: Force majeure is something you write into a contract; frustration is something the law imposes on you.
Understanding which one applies can make the difference between a temporary pause and the complete end of a contractual relationship. Automatically terminates the contract.
Force majeure: the disaster plan you agreed to in advance
Force majeure exists because the parties deliberately put it in their agreement.
The clause typically lists specific events such as earthquakes, floods, pandemics, strikes, wars or government restrictions and sets out what happens if one of those events prevents the contract from being performed.
In other words, force majeure is contractual risk management.
The clause might allow obligations to be suspended, deadlines to be extended, employees to be temporarily stood down, or, in some cases, the agreement to be terminated after a defined period.
The important point is that the answer will always be found in the wording of the clause.
If the contract says an earthquake triggers a three-month suspension, then that is what happens.
If the contract says parties must first attempt alternative arrangements, then that process must be followed.
Force majeure only does what the contract says it does. Nothing more, nothing less.
As I often tell employers, force majeure is less about the disaster itself and more about the plan you made before the disaster arrived.
Frustration: when the law says the deal is over
Frustration is completely different. There is no clause, no process and no agreed roadmap.
Instead, the law steps in and recognises that something has occurred which makes the contract impossible to perform or fundamentally different from what the parties originally agreed.
The threshold is very high. A business simply becoming less profitable is not enough. A project becoming more expensive is not enough. Supply chain issues, delays, inconvenience or commercial difficulty will rarely be enough.
The event must fundamentally destroy the basis on which the original agreement was made.
Think of a conference venue that burns down two weeks before a major event.
If there is no force majeure clause and the building literally no longer exists, there is no practical way for the venue to fulfil its side of the bargain. The contract cannot be performed.
In that situation, the contract may be frustrated.
When frustration occurs, the contract ends automatically. Nobody needs to give notice. Nobody needs to activate a clause. Future obligations disappear because the law accepts the deal can no longer be completed, but pre‑frustration rights remain.
In short, force majeure usually pauses a contract and frustration usually ends it.
The building example
Imagine a contractor is building a warehouse in Wellington. A significant earthquake damages roads, prevents machinery reaching the site and results in council restrictions on construction activity.
If the contract contains a force majeure clause covering earthquakes, the clause will usually be activated, work pauses and deadlines are suspended. Neither party is liable for delays while the disruption continues.
Once access is restored and restrictions are lifted, work resumes. The contract survives.
Now imagine there is no force majeure clause and the earthquake destroys the site so completely that the project can never be completed in the way originally intended.
At that point, frustration may become relevant because the fundamental purpose of the contract has disappeared.
The distinction might seem subtle, but legally the outcomes are vastly different.
One pauses obligations; the other may bring the entire arrangement to an end.
What does this mean for employers?
The employment implications are where many businesses get caught out.
After a major event, the first question employers often ask is whether they still have to pay people.
The answer depends less on what happened to the building and more on whether employees are able to work.
If employees are ready, willing and able to perform their work, employers generally remain responsible for payment.
If your employees can work but the business cannot operate, that is typically an employer problem rather than an employee problem.
Conversely, if employees genuinely cannot attend work because of the event itself, different considerations may apply, including leave arrangements, variation agreements and any specific contractual provisions that exist.
The key message is that a natural disaster does not automatically remove employment obligations.
You still need to examine the employment agreement, any force majeure provisions, your policies and your obligations under employment law.
The lesson from Covid
Most employers never worried about force majeure clauses before Covid. Now, many do.
The last few years have reminded New Zealand businesses that low-probability events can have very high consequences.
A well-drafted force majeure clause cannot prevent a disaster, but it can provide certainty about what happens next.
Without one, you may be left relying on frustration, and frustration is a much blunter instrument.
It is also much harder to establish.
For employers, that distinction can be the difference between a temporary disruption and a complete legal reset.