Contracting COVID: Private Order and Public Good

Abstract

The novel Coronavirus (2019) (COVID) has created a dilemma: Open the economy and spread disease; quarantine and choke the economy. Thus far, the response has looked to government for health-safety standards and financial subsidies. Although these are necessary steps, they have become politicized, thereby exacerbating severe uncertainties created by the pandemic. While we will surely halt it, we do not know how, when, or what comes next. Many writers are exploring litigation that will flow from COVID. This Article considers the flip side: the important but under-appreciated role that ex ante contracting plays in addressing the COVID dilemma. Liability waivers, for example, will be ubiquitous, but might be misused to shelter poor risk management. This essay argues that these waivers should be enforceable only when coupled with reasonable health-safety precautions, which may appear in contracts such as workplace rules or supply chain agreements. Without such balance—or worse, when imposed by fiat, as President Trump did in the meat processing industry—they can inflame the public health crisis. At the same time, the COVID-induced shutdown has caused most contracts to be in or near breach. This has resulted in responses such as litigation, bankruptcy, and bailouts. While these may be inevitable, second-order contracts such as standstill agreements provide certainty that enables parties to adjust commercial relationships in ways that may preserve more value at lower cost than public interventions. Contract in this context is thus doing more than creating private order; it is also producing public good. This hearkens to Depression-era scholarship which argued that contract had public ramifications. Although modern writers have largely abandoned that view, it reflected a change in mindset that cleared the way for sweeping New Deal reforms. While we do not yet know whether COVID will be as disruptive as the Depression, the uses of contract described here may signal a comparably dramatic realignment of private and public.