Skip to main content

Nixon Peabody LLP

  • People
  • Capabilities
  • Insights
  • About
Trending Topics
    • People
    • Capabilities
    • Insights
    • About
    • Locations
    • Events
    • Careers
    • Alumni
    Practices

    View All

    • Affordable Housing
    • Community Development Finance
    • Corporate & Finance
    • Cybersecurity & Privacy
    • Entertainment & Media
    • Environmental
    • Franchising & Distribution
    • Government Investigations & White Collar Defense
    • Healthcare
    • Intellectual Property
    • International Services
    • Labor, Employment, and Benefits
    • Litigation
    • Private Wealth & Advisory
    • Project Finance
    • Public Finance
    • Real Estate
    • Regulatory & Government Relations
    Industries

    View All

    • Aviation
    • Cannabis
    • Consumer
    • Energy
    • Financial Services
    • Healthcare
    • Higher Education
    • Infrastructure
    • Manufacturing
    • Nonprofit Organizations
    • Real Estate
    • Sports & Stadiums
    • Technology
    Value-Added Services

    View All

    • Alternative Fee Arrangements

      Developing innovative pricing structures and alternative fee agreement models that deliver additional value for our clients.

    • Continuing Education

      Advancing professional knowledge and offering credits for attorneys, staff and other professionals.

    • Crisis Advisory

      Helping clients respond correctly when a crisis occurs.

    • DEI Strategic Services

      Providing our clients with legal, strategic, and practical advice to make transformational changes in their organizations.

    • eDiscovery

      Leveraging law and technology to deliver sound solutions.

    • Environmental, Social, and Governance (ESG)

      We help clients create positive return on investments in people, products, and the planet.

    • Global Services

      Delivering seamless service through partnerships across the globe.

    • Innovation

      Leveraging leading-edge technology to guide change and create seamless, collaborative experiences for clients and attorneys.

    • IPED

      Industry-leading conferences focused on affordable housing, tax credits, and more.

    • Legal Project Management

      Providing actionable information to support strategic decision-making.

    • Legally Green

      Teaming with clients to advance sustainable projects, mitigate the effects of climate change, and protect our planet.

    • Nixon Peabody Trust Company

      Offering a range of investment management and fiduciary services.

    • NP Capital Connector

      Bringing together companies and investors for tomorrow’s new deals.

    • NP Second Opinion

      Offering fresh insights on cases that are delayed, over budget, or off-target from the desired resolution.

    • NP Trial

      Courtroom-ready lawyers who can resolve disputes early on clients’ terms or prevail at trial before a judge or jury.

    • Social Impact

      Creating positive impact in our communities through increasing equity, access, and opportunity.

    • Women in Dealmaking

      We provide strategic counsel on complex corporate transactions and unite dynamic women in the dealmaking arena.

    1. Home
    2. Insights
    3. Alerts
    4. Coronavirus and the franchise system

      Alerts

    Alert / Franchise

    Coronavirus and the franchise system

    March 26, 2020

    LinkedInX (Twitter)EmailCopy URL

    By Keri McWilliams and Kendal Tyre

    Global franchise companies must develop an effective coronavirus response plan, with both short-term emergency measures and long-term strategic plans, to guide them through this unprecedented time. This alert provides a checklist of issues that franchisors should consider with links to articles and resources that may be useful to franchise systems.

    DOWNLOAD

    Coronavirus and the franchise system (PDF)

    Global franchise companies are struggling with the effect of the coronavirus on their businesses and on the businesses of their franchisees. Franchisors must develop an effective coronavirus response plan and must communicate that plan to affected parties, including employees, franchisees, consumers, suppliers, and landlords. The Nixon Peabody Franchise & Distribution team has been providing guidance to our clients as they lead their organizations through this unprecedented situation.

    The response by franchisors to the coronavirus pandemic requires both short-term, emergency measures, as well as a long-term strategy for assuring a thriving franchise system. To ensure that franchisors are able to take advantage of emergency measures, we have been working closely with our Coronavirus Response Team and can provide assistance to franchise companies on the entire range of virus-related issues, including employment, access to SBA disaster relief programs, real estate issues, restructuring, and stimulus program assistance. For your ease of reference, we have assembled below a checklist of issues that franchisors should consider and have included links to articles or resources that may be useful to franchise systems. On a less urgent basis, we understand that the pandemic will have lasting effects on the way in which franchisors and franchisees do business, and we are incorporating the lessons of the pandemic into franchise agreements, Franchise Disclosure Documents, and franchise operations.

    Franchise system changes

    • Analyze whether to recommend or impose new or additional health, hygiene, maintenance, or sanitation measures upon franchisees, weighing potential brand damage against the implications for joint employment and vicarious liability.
    • Consider temporary changes to the business model and system standards to respond to changing restrictions; for example, moving from dine-in to takeout and delivery, or limiting operating hours to reflect changes in demand.
    • Consider whether to temporarily suspend or modify obligations such as marketing requirements, on-site events, mandatory operating hours, mandatory inventory levels and inventory ratios, etc.
    • Provide advertising support and a communications plan to publicize the changes.
    • If franchisees are unable to actively manage their franchise due to illness, consider conditions for temporary or permanent transfers.

    Supply chain considerations

    • Analyze the strength of the supply chain. If there will be shortages of branded goods or other proprietary ingredients or critical materials, consider expedited approval of alternate products and vendors.
    • Analyze force majeure and other provisions in vendor agreements to determine franchisor’s rights and obligations.
    • Explore options for alternate suppliers in case existing suppliers must reduce capacity or file for bankruptcy.

    Leases and landlords

    • Analyze current leases to understand obligations, including opening schedules and timelines, rent commencement dates, force majeure provisions, and other lease provisions.
    • Negotiate short-term arrangements with landlords to waive or defer rent payments, with rent deferrals containing extended repayment terms.
    • Consider creative solutions to reduce marginal costs such as relaxation of continuous operation covenants that require tenants to be open, lights on, for certain hours each day.
    • Re-negotiate lease terms so that landlords share some of the lease risk with the franchisor, such as a percentage rent concept or other profit-sharing methods.
    • Provide franchisees with assistance on lease reviews and landlord negotiations.
    • Develop template communications that franchisees can use to seek rent reductions and deferrals.

    Labor and employment

    • Develop a written communicable illness response program containing specific material for outbreaks.
    • Assuage fears among employees by ensuring open communication and dialogue.
    • Limit employment-related travel in light of CDC guidance. Note that there may be potential legal exposure in prohibiting workers from personal travel.
    • Permit telecommuting on a temporary basis, to the extent possible; avoid establishing telecommuting as a reasonable accommodation for medical conditions and illnesses.
    • Comply with anti-discrimination and other laws, and consider whether any action could be interpreted as potential discrimination against a particular race, ethnicity, or nationality.
    • Determine whether the staffing at franchisor’s corporate headquarters must be downsized or reprioritized to better support struggling franchisees.
    • Encourage sick workers to stay home and use accrued paid sick days, and remind employees of their options to use medical leave and/or paid vacation days.
    • Remind franchisees of their obligation to operate their businesses in a safe manner, to comply with all laws, and to ensure that their conduct does not have a negative impact on the brand or the franchisor’s goodwill.
    • Communicate to franchisees that they, and not the franchisor, are responsible for controlling their day-to-day operations, and encourage franchisees to consult with their attorneys to obtain legal advice.
    • Adopt heightened procedures for decontaminating common work areas at headquarters and company-owned locations, and incorporate such procedures into the operations manual so that franchisees must adhere to the same standards for disinfecting their locations.

    Insurance

    • Review business interruption insurance policies to determine whether insurance benefits are available.
    • Consider whether franchisees have similar insurance coverage and provide franchisees with data needed to support claims under such coverage.

    Loans and financing agreements

    • Analyze whether increased costs and decreased revenue impact franchisor’s ability to fund itself and maintain its financial obligations and covenants.
    • Consider whether discussions with creditors should be commenced to determine if forbearance or deferral options are needed and available.
    • Consider fee deferrals or waivers and other support for franchisees who are suffering from reduced sales or closures, while protecting franchisor’s rights in the event of a franchisee’s bankruptcy.
    • Determine whether the franchisor or franchisees qualify for SBA assistance under the federal disaster loan program, or similar state programs.

    Financial restructuring; proactive investments

    • Consider whether a preemptive Chapter 11 bankruptcy filing might be a prudent strategy.
    • Determine whether franchisor is in a position to make a strategic acquisition or investment in a distressed company, or to provide a direct loan to a distressed company that could turn into an ownership stake.

    Be vigilant regarding ongoing developments

    • Stay fully informed of all governmental orders (e.g., mandatory lockdown orders); they will have a significant impact on the nature and applicability of relief available, such as business interruption coverage.
    • Monitor new local, state, and federal aid packages; it is imperative to act quickly if any government relief is available.

    Practices

    Franchising & Distribution

    Insights And Happenings

    • Alert

      New House committee on coronavirus may shift investigatory landscape for federal fund recipients

      May 1, 2020
    • Alert

      How employers can prepare for expected waves of coronavirus (COVID-19) related litigation

      April 29, 2020
    • Alert

      Franchising in Africa during the coronavirus (COVID-19) era

      April 24, 2020
    The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

    Subscribe to stay informed of the latest legal news, alerts, and business trends.Subscribe

    • People
    • Capabilities
    • Insights
    • About
    • Locations
    • Events
    • Careers
    • Alumni
    • Cookie Preferences
    • Privacy Policy
    • Terms of Use
    • Accessibility Statement
    • Statement of Client Rights
    • Purchase Order Terms & Conditions
    • Nixon Peabody International LLC
    • PAL
    © 2025 Nixon Peabody. All rights reserved