Coronavirus

With the novel coronavirus pandemic affecting businesses across the United States in unprecedented ways, franchisors’ responses have largely fallen into two categories: There are franchisors that have stepped up to help their franchisees survive, and there are those that have chosen to aggressively enforce franchisees’ standard contractual obligations—even knowing that their inability to meet their financial obligations is a direct result of the COVID-19 crisis. Franchisors Need to Support Their Franchisees During the Novel Coronavirus Pandemic In a recent blog article, the International Franchise Association (IFA) writes that it is now more important than ever for franchisors to support their franchisees. As the author, Lauren Moorman, writes: “[M]any of the most vulnerable franchise systems will be looking to mitigate those losses by scaling back spending and imposing new austerity measures for franchisees. “This is a mistake. “While budget-tightening will be unavoidable for most franchise systems, franchisors should be careful not to create new burdens or restrictions on franchisees. . . . Instead, franchisors in every segment should focus on fortifying their front lines, ensuring that franchisees have everything they need to stay afloat now and recover quickly later . . . .” In order to help their franchisees weather the storm and ensure that their brands remain as strong as possible, the article recommends that franchisors take several steps during the COVID-19 crisis. Some of these steps include: Listening to Franchisees’ Concerns – Franchisees are on the front lines; and, while franchisors are feeling the effects of the COVID-19 crisis […]

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As discussed in a recent article published by Nation’s Restaurant News (NLN), some franchisors have begun offering financial relief packages to their franchisees during the COVID-19 crisis. According to NLN, major restaurant franchisors including Yum Brands (KFC, Pizza Hut and Taco Bell), Subway, McDonald’s, Chick-fil-A and Qdoba are offering relief ranging from, “deferring all 2020 capital obligations for remodels and new unit development through the end of this year,” to deferral of royalty and rent payment obligations. These relief packages come as these (and other) franchisors are requiring franchisors to severely limit their operations in order to help combat the spread of the novel coronavirus. In many franchise systems, franchisees have the option to implement social distancing and other safety protocols consistent with local practices as well. Regardless of the impetus, many franchisees are struggling as a result of the economic impacts of COVID-19, and this makes financial relief packages an attractive option for franchisees to whom they are available. Do Franchisor Relief Packages Come with Strings Attached? Before accepting financial relief packages from their franchisors, however, franchisees need to make sure that the relief being offered does not come with strings attached. Or, if it does come with strings attached, then franchisees need to know what these strings are, and they need to decide if the associated costs and risks are worth it. If royalty payments are being deferred, are they being deferred with interest? Will past-due royalties eventually be due in a lump sum; and, if so, when? […]

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FRANCHISES, COVID-19, WWI, IMPOSSIBILITY AND FRUSTRATION By: Jeffrey M. Goldstein Like many other small businesses, countless franchisees have been devastated by the COVID-19 pandemic. The financial and logistical disruptions of the coronavirus have caused numerous franchisees and small businesses to ponder the effects of the pandemic on contracts in general, including, for instance, their franchise agreements, supply contracts and leases. Although many of these agreements contain force majeure agreements, some of them may be determined to be specifically inapplicable to the COVID-19 situation based on the language in the clause. In such cases, the non-performing business or franchisee must avail himself of one of the common law defenses that could excuse his performance, including impossibility, impracticability, frustration of purpose and mutual excuse. Unlike many obligations imposed by law, the obligation to meet contractual obligations is generally considered absolute. In almost all cases, a person who fails to perform under a valid contract will not be heard to justify the breach or non-performance by a supervening event, no matter how devastating. This is true even though the party seeking an excuse was not negligent in failing to perform. If strict liability were not the rule, breaches of contract would be rampant where the non-performing parties found themselves in a worse financial situation after signing their contracts when it came time to perform. The four major exceptions to the absolute duty to perform under a contract (other than where the specific language in a contract explicitly excuses performance in the face of […]

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Legal Life after the Coronavirus Death for Small Businesses, Franchisees and Dealers By: Jeffrey M. Goldstein  www.goldlawgroup.com Second in a Series: COVID-19 HAS KILLED MY BUSINESS – MAY I LEGALLY TERMINATE MY CONTRACTS? Those who hope or believe that the consequences, effects, and sources of COVID-19 will soon be arrested and contained might be wondering whether their inability to have complied with their contracts, leases, and mortgages during this waiting period can lead to a subsequent termination of or suit under their agreements for failure to have fully complied with all of the contractual obligations in these contracts. Although I don’t anticipate that ‘other parties to your contracts’ individually or as a group are preparing or conspiring to terminate, default, or cancel anyone’s agreements, this does not rule out the high probability that when things return to normal (when market forces begin to work again unimpeded by the myriad current external shocks), every firm will naturally begin to focus again on ‘maximizing profits’ – the legitimate and necessary goal of individual suppliers in a free market economy. In general, whether you’re able to use COVID-19 as a legal ‘excuse’ for your inability to pay or otherwise perform during the coronavirus downtime is subject to whether the agreement in issue contains a provision or language that excuses your performance for unanticipated or unforeseen events. While many agreements contain such clauses, referred to as ‘force majeure’ clauses (clauses that excuse performance based on unexpected events such as floods, epidemics, riots, wars, etc.), […]

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The coronavirus (COVID-19) (“the Virus”) has made it impossible or impracticable for many businesses to comply with their contracts. The party who must ultimately bear the loss associated with the Virus largely depends on whether the explicit language in their contract contains a ‘force majeure’ clause. In the absence of such language, liability for the non-performance will turn upon the law of ‘impossibility’ in the applicable jurisdiction. Not only has the Virus physically disabled those responsible for meeting contractual obligations, but it also has caused many state and local authorities to issue orders banning or severely restricting association, gatherings and travel, for instance, which, in turn, create such impossibility or impracticability. The evolution of the Virus, as well as government and business responses thereto (quarantine and containment orders), has caused many businessmen, and lawyers in unrelated niches, to ask whether any legal excuses exist to discharge promisors from contractual obligations impacted by the Virus. As discussed below, and as will be discussed in more detail in subsequent articles in this series, businesses, including franchisees, distributors and dealers, who find themselves unable to meet certain obligations in their contracts, should seek legal assistance to determine whether force majeure or the common law of impossibility or impracticability excuses their contractual performance. While force majeure generally refers to unforeseeable “acts of God,” impossibility is a broad-sweeping doctrine that picks up events and occurrences that arguably substantially impede performance even though they are not nature related (e.g., blindness or death of famous artist in […]

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