Four Ways the COVID-19 Pandemic is Affecting Franchisor-Franchisee Relationships
The coronavirus outbreak is having an enormous impact on businesses throughout the country. Many companies have, at least temporarily, been forced to suspend or reduce operations. Other firms are dealing with serious disruptions. For franchisors and franchisees, the COVID-19 pandemic presents are some unique challenges. Here, our West Palm Beach franchise law attorneys highlight four key areas of concern for franchisors and franchisees.
How the Coronavirus Impacts Franchises in Florida
- Payment Structure (Royalties, Minimums, Liquidated Damages, Etc)
Franchisor-franchisee relationships are largely controlled by the franchise agreement. One of the most important aspects of a franchise agreement is the payment structure—specifically, how the franchisor is compensated. In most cases, franchisees make royalty payments. That payment is usually a portion of the revenue. Of course, the incoming revenue at many franchisees is down dramatically—revenue may even be down 100 percent if the entire business is closed.
Franchisees may still be required to make minimum payments, despite having no or little revenue. How exactly this situation will be handled depends on the specific nature of the business and the terms of the franchise agreements. Franchisors and franchisees should be proactive in addressing payment issues related to the coronavirus.
- Supply Chain Disruptions and Related Matters
Franchisors are often responsible for managing the supply chain for franchisees. Indeed, a franchise location may be required to use certain types of products in their business. Unfortunately, the COVID-19 pandemic has disrupted many supply chains. Franchisors may not be able to secure certain products or services for individual franchisees—at least at the levels that they are currently. Both parties need to be ready to resolve supply chain issues. Franchisors may need to find a way to secure alternative products to fulfill their duties under the agreement.
- Responsibility for Protecting Employees and Customers
An important question that both franchisors and franchisees have is: How do we protect our employees and our customers from COVID-19? Whether the franchise is an essential business or it is preparing to re-open in the coming weeks, it is crucial that the proper safety protocols are in place to protect employees and customers. Failure to protect people could result in the franchisor, franchisee, or both facing legal liability.
- Financial Relief From Government Programs, Insurers, and Other Parties
Finally, both franchisors and franchisees should be prepared to work together to secure any available financial relief. As an example, a federal government program called the Paycheck Protection Program (PPP) may provide a fully forgivable loan to cover payroll and operating expenses of businesses affected by the coronavirus. Alternatively, an affected franchise location may be covered under a business interruption policy. By acting quickly, you can help to ensure that your franchise is in the best position to make it through this difficult time.
Call Our South Florida Franchise Lawyers Today
At Pike & Lustig, LLP, our Florida franchise law attorneys are diligent, results-focused advocates for clients. If you have questions about the coronavirus and franchise law, we are here to help. For a confidential, no obligation consultation, please contact us right away. Our law firm represents franchisors and franchisees throughout South Florida, including in Miami-Dade County, Broward County, Palm Beach County, and beyond.