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Bulletin | Covid-19

COVID-19: A Unique Opportunity for a Franchisor-Franchisees Strategic Partnership!

Fasken
Reading Time 6 minute read
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Franchising bulletin

For many days now, we are being bombarded by articles, bulletins and messages providing all kinds of different advice and recommendations to face the COVID-19 global crisis we are living since the start of the new decade. It is an unprecedented crisis and, in many respects, we are faced with new situations on a daily basis.

As such, Fasken has set up a portal (the Coronavirus (COVID-19) Knowledge Centre), which is continuously updated, where you can find many of these documents and a lot of useful information to help you get through as best as possible this period of tremendous upheaval, both health-wise and financially.

For franchisors and franchise network executives and managers, as well as for their advisors, it is also a unique opportunity for collaboration and solidarity (a "strategic partnership") between a franchisor and its franchisees.

It is also a perfect opportunity to test-drive the strong synergy that can result from a healthy, positive collaboration, in the interest of the entire network, between the franchisor and its franchisees (even with a franchisee association, if there is one in the network).

The current crisis, major environmental challenges as well as disasters and other crises that we are now regularly confronted with (spring flooding, forest fires, glacial melting, climatic changes, etc.) increasingly remind us that the earth is a vast and unique system in which the actions of any of its components (such as humans) can have a significant impact, positive or negative, on the entire system and all its other components.

A franchise network is also a unique system that combines the franchisor, its franchisees, their managers, employees and business partners (i.e., product and service providers, advisors, lenders, landlords, etc.). Without exception, they are all affected by the current public health crisis.

Yet, as exemplified during the current crisis, in order to improve and, in the medium-term, to correct a problem or face a significant challenge, the strategies and guidelines issued by the governments (or by a franchisor) do not suffice.

An active and often immediate collaboration of all the system's components is crucial to allow the system to stay on course for the benefit of all the members.

Conversely, any improper action by a single link in the system (such as a franchisee) will harm the whole system and all its other members; and, in the same way, an appropriate action will benefit all.

The collaboration and solidarity between members of the system are by far preferable to actions, even if adequate, that are of the "everyone for herself/himself" type, just as are unilateral directives from the franchisor.

Franchisors who have established with their franchisees a management model based on a true strategic partnership are currently in a much better position than many others, given the active and continuous collaboration of their franchisees, to face the present global crisis.

However, for franchisors who have not yet adopted such a model, it is a perfect time to try it out in the exceptional context in which we are currently living.

A genuine franchisor-franchisees strategic partnership allows for active two-way collaboration, on a continuous basis, between the franchisor and its franchisees and also allows the whole franchise network to quickly benefit (in real time) from ideas, advice and initiatives of each of its members (and not only from the franchisor). It also has the advantage of encouraging solidarity within the network and the rapid sharing of relevant information to help the network to quickly adapt to how each crisis, each change and each opportunity evolves.

The strategic partnership also curbs opportunistic, even predatory, behaviour that some franchisees may be tempted to adopt in exceptional circumstances (such as drastically increasing the sale price of certain goods that are vital or in short supply).

Of course, appropriate provisions in the franchise agreement are still necessary to avoid harmful behaviour, but no contract provisions (at least given how franchise agreements are presently drafted) are able to trigger any voluntary and active collaboration between all franchisees and the franchisor, nor any true solidarity within the franchise network.

Moreover (and as proven by recent experience), some franchisees may decide that the COVID-19 crisis is an event of force majeure that takes precedence over the provisions of their franchise agreement and justifies unilateral decisions and actions that are contrary to their contractual obligations.

Such a belief, if it spreads within a network, may quickly lead to a situation that is somewhat chaotic, where each franchisee is acting individually and without consulting the franchisor and other franchisees. For example, some franchisees may decide to close their outlets, some may limit access, some may modify business hours, some may reduce personnel, etc., all without any dialogue or guidelines.

Instituting a real franchisor-franchisees strategic partnership is not easy, and not always fast (except when this model is implemented right from the start-up of the network), but in the medium and long term, experience has shown that it is truly worthwhile (such as during a crisis situation or significant change).

The current crisis represents an unique opportunity to experience it in an exceptional situation. If this collaboration succeeds, it may also be a step towards a broader adoption of a strategic partnership over the medium and long term.

Is Your Business Considered an "Essential Service" Under The Law?

COVID-19 is also a critical problem that is seriously affecting the entire franchise industry in Quebec following the passing of Order 223-2020 on March 24 by the Quebec government (the "Order"). Is your network legally authorized to operate?

The notion of "essential services" within the meaning of the law is not always as clear-cut as it may seem. The Order also provides for exceptions that allow a business to operate with limited personnel.

Even if your network or franchised businesses are, in some cases, considered businesses providing essential services (such as pharmacies and food retailers), or if your business qualifies as one of the exceptions under the Order, you still have to be able to provide a safe environment for your employees, associates and contractors. In other words, if businesses are authorized to continue their operations, but employees, associates or other contractors are infected due to the employers failing to implement safety measures (e.g. regular disinfection, limiting personnel and imposing minimal distances, etc.), it could incur criminal and civil liability (such as under the Act respecting occupational health and safety). Even more, this liability could also extend to its directors.

In our opinion, it would also be very advisable for all networks to communicate on a regular basis with their franchisees and to make them aware of this situation. Franchisors are subject to obligations of means, but, even in the face of the unknown, they are bound to take reasonable measures to protect their network.

Real problems have emerged for some of our clients this week. In certain cases, the police ordered businesses to close under the Order, unless store owners were able to produce a legal opinion confirming that, based on their legal counsel's interpretation of the Order, they were authorized to continue operations.

We are also able to prepare the necessary authorizations to travel for employees working for companies exempted under the Order.

Fasken has the necessary expertise and resources to help you better manage your franchise network and to best be able to face the issues and challenges that arise while avoiding potential pitfalls. During this unprecedented time, we have also put in place a virtual "crisis unit", led by Frédéric Gilbert and Jean H. Gagnon, which will provide you with quick answers when necessary. Any request for immediate assistance may be addressed to fgilbert@fasken.com and will be quickly attended to.

P.S.: If you would like to find out more about the franchisor-franchisees strategic partnership management model, you might like to read (or reread) the book, Le partenariat stratégique : L'ingrédient clé du succès en franchisage, 2e édition.

 

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