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Franchisor Considerations in Light of the COVID-19 Global Pandemic

| Mar 26, 2020 | Uncategorized

Earlier this week, we listened to a webinar sponsored by the American Bar Association Forum on Franchising on Franchising and COVID-19. While they obviously could not put forth any hard and fast rules about what franchisors should be doing during this crisis, they gave us some good food for thought that we wanted to share with you.

Franchisors should be in regular communication during this time with franchisees. They should also be issuing regular communications to customers for the protection of the brand. Of course, there may be some regional differences depending on what is happening in one state or region of the country.

This is a time for franchisors to be more flexible (without sacrificing brand standards) and give the franchisees some leeway.

– Changes may need to be made temporarily in how products or services are offered and the manner in which they are offered

– Franchised business may need to close due to government orders, illness of the franchisees or their employees, the inability to meet brand standards in operating the business or it being economically not feasible to stay open.

– Franchisees will likely be asking for waiver of royalties and other payments. Consider deferral of payments instead of a complete waiver, and if it is not feasible to waive or defer royalty payments, look at other fees such as ad fund contributions, technology fees, etc. (Deferral is a postponement of payment that can be collected at a later date.)

– Now may not be the time to issue notices of default or termination unless there are serious violations such as violation of governmental orders or risking the health and safety of employees and/or customers.

– Check whether your franchise agreement has a force majeure provision that allows performance of one or both parties to be suspended and see if this type of crisis is covered. Also, check to see what obligations will be suspended (often such provisions may exclude payment obligations).

Franchisors can provide additional assistance to franchisees during this time, such as:

– Provide new, temporary procedures that will allow the franchisees to continue operating and continue to update them as necessary.

– Communicate with customers on behalf of the system as to what is happening with your franchised businesses or provide templates to franchisees for sending communications to their customers.

– Address supply chain issues with major vendors on behalf of the franchise system.

– Contact landlords on behalf of franchisees regarding the need for relief for the franchised businesses due to reduced revenue or temporary closing.

– Provide links to information.

– Share best practices for this time of crisis that you have discovered yourself in operating units or have discovered in communications with franchisees.

While we are in unchartered waters, and there are no clear answers, we are ready and available to discuss with you any COVID-19 issues that have arisen or may arise with your franchise system in the coming weeks.

We hope you all are staying safe.