How is COVID-19 Impacting Arizona’s Franchise Businesses?

Franchise Business Owners Appealing To Law Firms To Negotiate New Terms

The coronavirus pandemic has impacted just about every aspect of our lives. Many Arizona businesses have had to close temporarily, or they have had to make major modifications to their operations, including allowing their employees to work virtually, providing curb-side services for customers, and changing the way they deal with their vendors.

The situation is the same for franchises, which has also complicated franchise agreements in some cases, sending many to business attorneys in Gilbert to learn about their options for enforcing contracts or protecting their rights.

Sectors Most Heavily Impacted

Perhaps not surprisingly, some of the sectors most heavily impacted by the coronavirus pandemic have been retail and hospitality. Many retail stores have had to close or limit operations, not only for the safety of their customers but also their employees. Fewer people have been permitted in stores, which means fewer people able to work and fewer sales from fewer customers.

Franchise Market Research and Consulting data shows that a 90-day shutdown will result in up to 225,000 lost jobs in the restaurant industry, as well as up to 10,000 restaurant closures. The same data estimates job losses of 38,000 for the lodging sector, 100,000 for the personal services sector, and 30,000 for the residential and commercial services sector. The data also projects facility closures of up to 1,500 for lodging, 9,000 for personal services, and 3,000 for residential and commercial services.

Legal Issues to Consider

Franchise agreements require the franchisees to meet certain criteria, including maintaining certain business hours or meeting certain standards for service or operations. Closures and other changes brought on by COVID may make it hard for franchisees to meet the requirements laid out in the franchise agreement.

Some issues that are arising involve the Force Majeure clause, as well as the clauses involving approved suppliers, many of which may not be able to provide needed inventory during the pandemic. Franchisees may need to negotiate new (if temporary) terms or to use different vendors in order to meet the requirements of the franchise agreement for operations. If you are the franchisor or the franchisee, it is important that you talk to a Chandler business attorney about your options under the agreement and what amendments you need to make.

Helping Franchises

Some franchises are struggling financially since sales are down with limited operations and since many are having to make safety upgrades that cost a lot of money. Fortunately, there are some reasons available that franchisors can share with their franchisees. Some options include the SBA Economic Injury Disaster Loan Program and other emergency loans provided by the SBA. Arizona and other municipalities are also offering emergency loans and other aid.

If you own a franchise that is struggling, you should look into these programs. If you are a franchisor with struggling franchisees, you can compile a list of these programs and share them with your franchisees. Getting the needed financial aid can help franchises stay in business and avoid legal action for everyone.

The coronavirus pandemic has hit businesses hard already, and the situation is showing no signs of a resolution soon. We may continue to be in quarantine for another year or more. If cases surge, we may have to go into a stricter lockdown again. It’s important that we adapt however we can to keep business going during this time. If you have questions about your responsibilities or options as a franchisee or franchisor, talk to a business attorney in Gilbert about your legal rights and responsibilities. Your business lawyer will look at your contract and help you understand what’s possible within the framework of the contract and larger business laws.

The business attorneys at Denton Peterson Dunn are ready to help you with your franchise agreement if you are facing big changes because of COVID. We’ll review your contract and help you understand what your rights and options are. We may be able to help you modify your agreement, or we may be able to represent you in litigation. We’ll help you understand the best legal strategies to meet the goals you have in mind. We represent franchisors and franchisees in all business sectors. Call us in Phoenix today to schedule a consultation with a business attorney.

Brad Denton – Denton Peterson Dunn