COVID-19 may well be a human crisis but it is also very much a business crisis, as the hard-hit economy teeters on the brink of recession. For franchisors, the best advice from our franchise law solicitors is to work together with franchisees and create a strategy to jointly tackle the challenges.
Concerns for Franchisors and Franchisees
The biggest concern for franchise networks right now is that some franchisees may use force majeure clauses to abandon their franchise. The specifics will vary from contract to contract, but our advice to franchisors is to check their agreements with a franchise law solicitor, assess the potential risks and establish a support team to help your business and to support your franchisees. It seems common sense that if your franchisees feel supported and nurtured, they are more likely to want to ride out the storm with you. After all, they joined your business to create their own.
However, force majeure is not the only issue and not all sectors are being hit equally. Franchises in travel, tourism, food and drink, leisure and hospitality are disproportionately affected, while the retail sector can mitigate its losses by moving to online sales channels. If you have a retail-based franchise, support your franchisees by sharing information about online sales. In other sectors, share the latest information and establish yourself as a trusted source of support. If franchisees don’t feel abandoned, they are less likely to abandon you. Think about holding regular zoom calls to maintain contact.
Whether a franchisor or franchisee, another important thing to do is to check your insurance policy for business interruption provisions. You would be amazed how many people pay for it but haven’t even considered whether they are covered during the COVID-19 outbreak. Again, if your insurer refuses to pay up but you think you are insured, our commercial law team will be able to advise you.
Supply chain issues – communicate, communicate and then communicate some more
One issue for franchisees who import their wholesale goods from abroad could be disruption to the supply chain – China’s lockdown hit manufacturing hard, but imports from the EU, the USA and other locations could also be impacted.
It’s worth exploring your supplier agreements, and your insurance policies, seeking legal advice if necessary, to see what support you can get and whether any compensation is payable for delayed orders. Again, force majeure could possibly be claimed by suppliers, depending on the contract. Try to source a backup supplier who can deliver quickly just in case, and again, if you aren’t sure where you stand, seek legal advice. Our team are here to help.
In the meantime, communication is crucial to maintain franchisee confidence – communicate with suppliers, don’t wait for a missed delivery slot before getting in touch with them, and keep your franchisees in the loop so they can extend the same courtesy to their customers.
You aren’t the only one supporting your franchisees
The good news is, it isn’t all one-way traffic. Franchisors can also explore:
- Exploring their own force majeure provisions to cancel supplier orders and re-order locally
- See whether suppliers are able to extend credit terms, even if they were not previously available, so you can support your franchisees
- Discuss what support is available from your local council, for example on rates and premises rental, and encourage your franchisees to do the same
There are many sources of free COVID-19 advise, from how to work successfully from home, how to sell online and so on, and it’s worth establishing yourself as a point of knowledge, sharing relevant information for your team (much like the trusted, benevolent parent). It also creates an opportunity for you to strengthen your bond, to get franchisees to share best practice with each other and to become a stronger organisation even if the challenges are mounting.
Review your contracts – fast
There’s never been a more urgent time to check your contracts (both with suppliers and franchisees) are fit for purpose. It goes without saying that if your franchise solicitor discovers clauses in your agreements which are suboptimal, they are likely to advise you to redraft them going forwards, but a telephone or online appointment with your specialist franchise law solicitor will also give you an opportunity to tap into their extensive industry expertise.
It is possible to get through this – but franchisors, more than any other sector of the UK economy, need to show strong leadership, exceptional planning skills and seek trusted advice where needed if they are to navigate this crisis successfully.