Faegre Drinker partner Brian Schnell and associate Nick Rotchadl were interviewed by the Franchise Times on how to minimize litigation between franchisees and franchisors when the COVID-19 crisis ends.
Nick advised clear and transparent communication from franchisors: “If you have franchisees who are similarly situated…you want to treat them in a similar way.” For example, a franchisor could offer a certain package of relief if sales are down by X, and another if sales are down by Y. There is need for a “systemwide memo that’s transparent of what the relief is offering, how it will work, when it will be in place, when it will end. So later down the line, everybody has something to go back to.”
Different franchisors are approaching the relief topic in different ways…It’s all over the board,” Brian added. He advises against amending the franchise contract because that’s too cumbersome. Rather, issue “a systemwide communication that spells it out.”
Because risk of damage to the brand is high, franchisors should take swift action to terminate a franchisee that’s violating government shutdown orders, Nick said. He also advises documenting issues that have nothing to do with COVID-19, despite an operator who might claim otherwise. “This situation is not a free pass for violations. For instance, non-payment that may have occurred months before COVID-19,” he said. “If you do a nice job” of documentation, “when we come out of this, the record will be more favorable to you as a franchisor.”
Brian says most franchisors and franchisees are working together during the crisis, and not getting mired in small disputes. “You’ve heard me talk about the importance of ‘Franchise Strong’,” he said. “This is the time we all need to step in and step up—step in and step up now like never before. We will be judged by how we lead, and the results we achieve are absolutely critical.”
“Documentation Key to Future Legal Woes” by Beth Ewen was published in the April 2020 Franchise Times.