Legal Guide for Franchised Businesses Reopening Amid the COVID-19 Pandemic
As businesses in Florida continue to reopen in the wake of the coronavirus pandemic, there are some legal considerations for owners of franchised businesses. We have prepared a guide for franchised businesses reopening amid the COVID-19 pandemic.
Employment-Related Claims and Employee Safety
Like all other companies, franchised businesses must prioritize their employee safety when reopening in the wake of the pandemic. A franchised business is not only facing litigation risks arising from layoffs, furloughs, and pay cuts during the pandemic, but could also face complaints about the inadequate workplace and employee safety.
As evident from a number of joint employment lawsuits in recent years, the franchisor could be held liable for inadequate employee safety policies even though the individual franchisee is the one that directly employs the workers.
While the U.S. Department of Labor has imposed limits on joint employment liability in franchise law, several states have challenged those limits in courts. Also, federal legislation has been enacted to expand joint employment liability in franchisor-franchisee relationships.
The COVID-19 pandemic and employment-related claims filed by employees after reopening a franchised business could intensify the debate over joint employer liability in franchisor-franchisee relationships. It is vital to consult with a franchise law attorney to determine whether you can be held liable as a joint employer when facing employment-related claims after reopening your franchised business.
Contractual Obligations in Franchise Agreements
Like some other businesses that were affected by the coronavirus pandemic, a franchised business may have a hard time meeting their contractual obligations, including but not limited to:
- Payment of monthly royalty fees;
- Payment of operating expenses and other fees; and
- The duty of good faith and fair dealing.
Businesses in industries that have been hit the hardest by COVID-19, including hospitality, travel, restaurants, and others, are even more likely to struggle to meet their contractual obligations under the franchise agreement.
Normally, a franchisor’s failure to provide services mandated by the agreement could result in a lawsuit. However, during these unprecedented times, both franchisors and franchisees could potentially excuse the non-performance of their contractual obligations.
To mitigate the risk of business litigation – breach of contract claims, in particular – a franchisee or franchisor must review the specific terms of their agreement with the help of a skilled franchise law attorney.
Note: Franchisors and franchisees should carefully review the terms of their agreement before non-performance to avoid unintended and unanticipated legal consequences.
Changing a Franchise Agreement Amid the COVID-19 Pandemic
If a franchisor and franchisee are able to negotiate changes to their contractual obligations, it is vital to hire a lawyer to ensure that those changes are valid and enforceable. If both parties are capable of performing their contractual obligations after reopening, franchised businesses may want to consider changing their franchise agreement to address emergencies such as the pandemic in their existing or future contracts.
Franchised businesses may consider adding “pandemics” or “stay-at-home orders” as force majeure events that would free them from their contractual obligations.
You need a knowledgeable franchise law attorney to review your agreement and ensure the presence of the appropriate language to make sure that any provisions related to pandemics are enforceable.
If your franchised business is reopening amid the coronavirus pandemic, talk to our West Palm Beach franchise law attorneys at Pike & Lustig, LLP, to examine your particular situation and address any legal risks. Call at 561-291-8298 to schedule a consultation.