Be Careful When Terminating Franchisees After Pandemic, Lawyers Say | Franchise News
Do not empty the inbox yet. That was advice for franchisees offered by Jason Murray, partner at K&L Gates, during a new Franchise Times Legal Eagles webinar on COVID-19 terminations and litigation.
“There will be a lot of back and forth” between franchisors and franchisees, he said. “There will be a paper trail if you like, about ‘Hey, they knew I was having trouble. They said they would help me.’ And the question is, is it enough to say, did we have an agreement or did we not have an agreement? “
Adam Wasch, managing partner of Wasch Raines, said he had seen “very large and highly capitalized systems” that sent endorsements waiving royalties from March and April of last year, for example, “in exchange for which is essentially a “claims dump” that existed before COVID. Some of his franchise clients introduced them to him and asked if they should sign. “And I said no” because they should not give up their right to sue.
With regard to the abundance of COVID-19 cases already filed and likely to be filed invoking the “force majeure” clause, also known as the “no-release card” for franchisees and franchisors, as Murray said, one panelist was skeptical of their use.
“It is too early to fire” franchisees who performed poorly during the pandemic, said Jeffrey Goldstein of the Goldstein law firm. “Why not wait another six months? I think that is misguided, and I think some courts are going to look for a pretext” if they receive a flood of post-pandemic dismissal cases. “With franchisors doing this as a group, the courts are going to look at the motivation and the pretext,” which the courts have not done before in the franchise business, he said.
Click here to watch the lively exchange on post-pandemic terminations and litigation, starting at 1:06:27, and other webinars on the topic, presented by lawyers for Franchise Times Legal Eagles.