On April 3, 2020, banks commenced taking applications for the Small Business Administration’s (“SBA”),  Paycheck Protection Program (the “PPP”) loans, as provided in the Coronavirus Aid, Relief, and Economic Security Act aka the CARES Act.  At the highest level, the PPP allows eligible businesses to borrow up to 2.5x average monthly payroll costs from the last year, subject to a $10 million cap.

The SBA issued guidance with respect to the Affiliation Rules applicable to the PPP.  Affiliation determinations are significant under the PPP because the applicant and each “affiliate” is viewed as one business for purposes of calculating the number of employees.  Subject to certain exceptions, only businesses with 500 or fewer employees residing in the United States and in operation on February 15, 2020 are eligible to borrow under the PPP.

Under the SBA’s PPP guidance, entities are affiliates when one controls or has the power to control the other, or a third party has the power to control both.  It does not matter if control is exercised, just that it may be exercised.  The types of control that the guidance describes goes beyond majority ownership, but to the actual power to make significant decisions for a business – through ownership, control of a board of directors or other contractual means.

So, the good news? The affiliation rules are waived for “any business concern operating as a franchise that is assigned a franchise identifier code by the SBA”.  So, though franchisees, through their franchise agreements, system standards set by their franchisor in the franchise agreement and operating manuals, the employees of the franchisor (and potentially other franchisees) will not be counted with those of the franchised business to determine if the business has less than 500 employees, so long as the franchise has been listed on the SBA franchise registry.

Importantly, the exemption for franchised businesses listed on the SBA Franchise Registry merely means that the affiliation rules to not apply.  Under the guidance, a franchised business is eligible for a PPP loan, but if the franchise system has over 500 employees and the franchisor is not listed on the Registry, it is possible the SBA may apply the affiliation rules.  At this point, it is not certain.

Let’s face it—COVID-19 has decimated the franchise industry, along with the rest of the economy. The food service, hospitality, travel and the service sectors had very tough decisions to make almost instantly, with very little guidance. Questions persist: Can or should franchise businesses continue to operate? How can workers be protected? How can business be supported and bills paid? How long will it last, and how quickly can the industry get back on its feet?

We still don’t know the answer to the last two questions. But the Coronavirus Aid, Relief and Economic Security (CARES) Act, signed on March 27, 2020 should help staunch the financial bleeding. CARES offers franchise businesses a liquidity lifeline in the form of loans (which can become grants), deferred payments, and tax relief. CARES is targeted to small businesses (fewer than 500 employees) but in a coup for franchising, franchises, specifically “any organization operating as a franchise that is assigned a franchise identifier code by the SBA,” are exempted from the size eligibility requirements. This is especially significant for multi-unit franchisees, whose multiple locations when combined would have exceeded the 500 employee limit. In an earlier parallel move, Congress enacted the Families First Coronavirus Response Act (FFRCA) to protect liquidity for individuals and families. The overarching intent of these massive spending bills, unprecedented in our nation’s history, is to help businesses and individuals weather the challenge of COVID-19. Neither law is intended to be a stimulus.

CARES poses tough choices to businesses that are already in shock, the result of an abrupt closure or dramatic sudden catastrophic decline in income. Should employees be laid off or retained? Is it better to off-load employee expense, normally a business’ greatest expense, or keep them employed and bear the potential burden of the increased sick pay and family medical leave payments mandated by FFRCA? If a business opts to maintain employees, will it be able to survive financially? If employees are laid off, how quickly will they return to the workplace in light of the greatly expanded and very generous unemployment benefits mandated by CARES? When the virus struck, the workforce was fully employed; there was no excess of workers. Thus, workers who are financially dissuaded from returning to work when the virus emergency ends may dampen or delay the economic recovery that is the goal of CARES.

Continue Reading CARES ACT – A LIQUIDITY LIFELINE (With tough choices for franchising)

There’s a big insurance company that uses the tag line:  Life Comes at You Fast.  I sure feel that life is coming at me very fast in this Brave New World of COVID-19.  Congress seems to agree, as it worked in record time to enact the $2 Trillion Coronavirus Aid, Relief and Economic Security or CARES Act.  We provided a quick overview of the immense new law on Friday.

The Act provides financial support for small businesses and targeted sectors of the economy, along with direct cash payments to many Americans and enhanced resources for medical support.

A really excellent chart comparing the differences in, and advantages and disadvantages of, the new SBA loan programs can be found here.

Fox Rothschild has assembled a multidisciplinary team of attorneys to guide clients in securing the assistance made available through this massive new law. Our extensive knowledge of corporate financing and lending, and specific experience in advising on Small Business Administration loans, enable us to direct clients to the smartest, most strategic options.

Visit our Coronavirus Resources page for links to free webinars, articles and charts with practical guidance for leaders of companies of all sizes. Fox attorneys are closely tracking legal and regulatory developments to help clients solve their COVID-19 challenges.  As soon as we have our franchise-specific analysis complete, we will have that posted here as well.

As the effects of the COVID-19 outbreak evolve, we here at Fox Rothschild continue to update our Coronavirus Resource Center. Today, we’ve been hard at work reviewing the historic CARES Act and its over 800 pages of provisions.

Learn what’s contained in the $2.2 trillion CARES Act stimulus package and how it will affect businesses and individuals in an alert by Lauren McKenna.

Diana Palecek and Paul Edelberg provide an overview of the financial bailout options for businesses impacted by the pandemic via the CARES Act and existing SBA programs. We continue to drill down on these provisions and expect to provide even greater detail early next week.

If you missed our March 26 webinar, The COVID-19 Financial Crisis: A Survival Guide, access the slides and audio from the presentation with Mette Kurth and Brian Shaw.

Get details on how the FDA is loosening regulations to help laboratories and commercial manufacturers expedite the development of COVID-19 testing in an alert by Margaret Davino and Nawa Lodin.

And, as appropriate, we are updating the Fox resource page and our blog with franchise specific information, including a franchise survival guide and updates to the status of state regulators. Moreover, our own Tami McKnew is working on a review of the CARES Act just for the franchising community.

Visit our page regularly and look for the “NEW” tag, which highlights the latest updates offering practical advice on how businesses and individuals can respond effectively to the pandemic.

Stay well, and stay well distanced. We want to see you soon!

This was updated on April 6, 2020, to reflect changes issued by Virginia.

This has been updated to reflect changes issued by Florida, Hawaii, Indiana, Minnesota, New York, and Washington.

Good things come to those who wait … except when you are referring to state franchise registration timelines.  This is one of the busiest times of year for franchisors with fiscal year ends that coincide with the calendar year, as the Franchise Disclosure Document (“FDD”) for those franchisors must be updated no later April 30 of each year. This is compounded by the fact that certain franchise registration states, New York, Minnesota and Illinois to name a few, also align their franchise renewal registration timelines with the same 120-day fiscal year end. This is (likely) further compounded by deadlines for other franchise registration states generally coinciding with this timeline.

So what is a franchisor to do when a global pandemic arises during the height of franchise registration season? Thankfully, many of the franchise registration states have issued guidance extending deadlines for submissions. Because certain of the state regulatory bodies are continuing to work remotely, however, some regulators are not extending any deadlines but may be making other concessions. As such, we have put together a list, current as of March 30th, with the guidance proffered by each state regulator thus far:

California No extensions but will accept DocuSign documents, waive late fees and franchisors are strongly encouraged to submit filings through online filing system. Any paper filings must include a waiver of the automatic effectiveness.
Florida Deadlines are tolled 45 days from original date of expiration if the expiration falls within March or April.
Hawaii Deadlines extended to April 30, 2020. Online filings are encouraged.
Illinois No extensions but will not require notarized registration materials.
Indiana Deadlines will not unilaterally be extended by the Division. The Indiana Securities Portal is fully operational and a majority of registrations can be submitted electronically. If filing through the Portal, and an item cannot be completed because of impact to business operations due to the COVID-19 pandemic, a franchisor must contact the Division for assistance. The Division is receptive to requests for certain regulatory relief.

Extension of deadlines for franchise renewal registrations and exemptions that expire during the “Coronavirus State of Emergency” (announced on March 5, 2020) for 30 days after the end of “Coronavirus State of Emergency” issued by the Governor of the State of Maryland.

Franchisors may offer under a FDD that is not registered with Maryland so long as: (a) the FDD has been updated in accordance with the FTC Rule on Franchising; (b) the franchisor does not enter into a franchise agreement with the prospect until the 2020 FDD is approved in Maryland; and (c) the franchisor follows proper re-disclosure requirements with respect to the Maryland-approved FDD (including provision of the changed pages in response to Maryland).

Online submission is unavailable.

Minnesota Deadlines extended to June 30, 2020. Online filings are encouraged. Notarization requirements are waived.
New York

Franchisors are granted a 90-day extension of renewal deadline to July 29, 2020 if such renewal deadline is between March 23, 2020 and April 30, 2020 (the “Relief Period”).

A franchisor that is filing a franchise registration renewal nor an amendment may offer franchises, but not sell, until the IPB reviews the application and notifies the franchisor in writing that its FDD has been accepted.

All filings can be submitted in email form in addition to the required paper copies. The emailed copies must include a copy of the front and back of the filing fee check and include the following statement: “I will cause this filing and payment to be mailed to the Department of Law forthwith.” The email submission should be sent to: IPBFRANCHISE@AG.NY.GOV.

After email correspondence with a representative from New York, we were informed that any submissions that arrived in NY before March 11, 2020 for which no response has been received, it will need to be “re-submitted” electronically. If the franchisor received an acknowledgment, the emailed submission should be sent directly to the applicable examiner along with the acknowledgment letter. This includes send the clean copy of the FDD, the red-lined pages of the FDD, and Form A in separate attachments. If the franchisor did not receive the acknowledgment, the franchisor would need to resubmit through the general submission email noted below.

Rhode Island No penalties for registrations due in March and April (per internal guidance).

Deadlines are extended indefinitely during the Judicial Emergency Declaration (as defined in Executive Order No. 51).

Online submission is unavailable.

Washington Deadlines will not unilaterally be extended. Online filing system is fully functional and Division has been working remotely since March 12. Division is waiving requirement for notarized documents.
North Dakota and South Dakota No extensions but can discuss issues with examiner on case-by-case basis.
Wisconsin, Michigan, Rhode Island Pending response from regulatory body.

We are wishing all of you safety and health during this tumultuous time. We will update this list as we receive further guidance from any state examiners.

A recession is coming, if it is not already here. But this won’t be a recession like 2008. Back then, the banks threw you under the bus so that they could survive. Today, they are stronger. More importantly, they know they must partner with you. So your strategy must be different now.

Bottom line? Flexibility and fast responses from both franchisors and franchisees to changing conditions are the keys to surviving. The advice in this post may have a short shelf life because the economic environment, and governmental restrictions and aid, may change abruptly. Nevertheless, franchisors and franchisees working together provides the best chance for success.

Governmental Action

The International Franchise Association is lobbying Congress as it finalizes the CARES Act to recognize both the special role that franchised businesses play in the economy and the unique vulnerabilities of franchised businesses. The priorities of the Act are small business funding, a business interruption insurance component and a possible “Employment Insurance “ provision in order to allow employees furloughed during the crisis to receive Unemployment Insurance but remain tied to their employers for health coverage among other benefits.

Survival requires close monitoring of relief and assistance packages that are under discussion at all levels of government. Just because something essential does not pass on the first legislative initiative does not mean wisdom will be ignored on the second legislative event. Provide support for those who are arguing for your interests before government. Industry leaders have been very vocal in communicating the critical needs of our industry, and the scope of the coming crisis means that new legislation will be announced serially in the near future.

Assist in Seeking Aid

Assist franchisees and employees in applying for available and likely ever changing benefits.  For employees you cannot keep, encourage them to apply for unemployment now. You may need them in the future, and you want to show them the love even if you cannot show them the money.

Open Dedicated Lines of Communication

Communication will serve your brand best during this ordeal. Have a designated communications spokesperson and channels solely for COVID-19 issues. Set up phone meetings with your stakeholders, including key customers, suppliers and franchisees. Don’t keep them guessing or speculating. They may even offer constructive advice.

Talk to Your Suppliers, Landlords and Vendors

Reach out to your suppliers, landlords and vendors now. They are nervous and will accept your call because they know it is coming. Just like you, they are looking for information from the front lines and want to take your temperature. They want to understand the liquidity of the business and avoid surprises. They will want predictions and commitments, which are impossible in this environment. Make no commitments but communicate that we all need to work together, and when the fog clears, everyone will be back on track.

Have the Sometimes Difficult Discussion with Your Lender/Funder

Lenders and funders are poised to expect calls about debt relief, so get in line to talk with them. Then, talk to them early and often. Communications with lenders are a bit more formal than those with landlords and vendors so make sure you work with professionals and rehearse before you communicate. We anticipate that there will be a stampede for debt relief, so make sure you are at the front of the line and have positioned yourself as one of their favorites because you engage in direct, transparent conversations about liquidity. The typical deals available will be to go interest only, but if you need more, ask for more. The banks are strong, money is cheap and plentiful, and the legislation is intended to make everyone whole, so now is the time to ask for more if you need it. The federal government is singing a new tune and wants to be a friend to small business, and the banks are listening.

Liquidity Is Key, So Conserve Cash

Put new development, remodeling and re-branding plans, and other expensive projects on hold. Liquidity will be the key to survival and new facilities will mean little if you cannot exploit these expenditures right now. Same with development agreement obligations. These should be suspended, as they will be cash wasters until the business environment improves. Same with utilities and taxes. Likely no shutoffs and no heavy hand enforcement during a crisis. Make sure that you have counsel to navigate the tax issues, because you need to negotiate from a position of safety and not cross the line.

Be Flexible Respecting Royalties and Advertising Fees

Franchise royalties and advertising fees are being deferred or abated by many of the major franchisors. We have heard of total abatement for businesses that have been closed by state and/or local governmental order. For those operating on limited scope, such as takeout or drive-in only, the weekly payment of royalties and advertising have been deferred for as much as 45 days. If you are a franchisor, think in terms of good will and needed liquidity for hard hit franchisees. If you are a franchisee, ask for reasonable adjustments. Franchisors that reasonably accommodate franchisees will lead their franchisees’ other creditors into making necessary accommodations because those creditors will see that the franchisor is sharing the risk and the recognition that something must be done. Such accommodations will create good will and are necessary to maximize the likelihood of success after the COVID-19 war is over.

Check Your Insurance

Some of the proposed legislation has a business interruption component. That is no substitute for business interruption insurance coverage if you currently have it. Go to your broker and run this down. Usually this is a matter of interpretation and can require lawyering. Same with force majeure clauses in franchise agreements, leases and vendor contracts. These are pattern clauses allowing for contract performance to be suspended or cancelled in the case of war and other forces outside of the parties’ control. Particularly for cross-border contracts, these clauses will be the subject of dispute resolution and may ultimately provide the necessary leverage to avoid permanent closures. Contact the lawyers who provide help with these clauses, particularly those with international expertise where most of these clauses are interpreted, even for domestic disputes.

Restructuring Options

Franchisors should be poised to be proactive in franchisee restructuring. Franchisors can assemble a menu of governmental offerings and lead the way in discussions with key creditors. Franchisors can show how they will partner with key creditors, and maybe even subordinate royalties and advertising on a selected basis so as to maintain operations at particular sites. System wide relief should be considered in connection with workout professionals, whether they be lawyers or restructuring advisors.

Franchise companies grow through passion AND compassion for their brands,  customer needs and  franchisees. Passion and compassion is needed more than ever if operations are to survive and ultimately flourish in this economic environment. Perhaps your company should cocoon for the present so that it can come out strong when the coast is clear; maybe you need to be proactive and demonstrate how to lead the way. Each company will need to choose the best way to survive, maintain and build on brand equity. The companies that position themselves now, and which maintain their passion tempered by compassion, will be the post-war industry leaders.

shutdown sign, grungy style, vector illustration

Yesterday, I noted that Pennsylvania Governor Tom Wolf had issued an order directing all “non-life-sustaining” businesses in the Commonwealth to close at 8 p.m. yesterday. His stated goal is to “manage the crisis as we see the full brutality of the virus in the coming weeks.” Enforcement actions will begin Saturday at 12:01 a.m.

This evening, the Governor and the Department of Community and Economic Development (DCED)  issued updated guidance for the shutdown.  Among other businesses, accountants and tax and payroll preparation services are now allowed to open. The stated goal of the updated guidance is to align the Pennsylvania list with the advisory list issued by the U.S. Cybersecurity and Infrastruture Security Agency respecting critical infrastructure sectors. The new list of industries impacted by the revised guidance can be found here.

If a business listed for closure believes it could help mitigate the crisis by providing or supporting a life sustaining service, it may seek an exemption from DCED.  The process of seeking an exemption is now streamlined, using a form on the DCED website.  The fillable Exemption Request form can be found here.

As this rapidly evolving situation changes, I will be back to provide you with further updates. As always, please see Fox Rothschild’s Coronavirus Legal Information Center for the latest information. Stay well. Stay safe. And Godspeed.

By Fox Rothschild litigation attorneys Brian A. Berkley, Jacob S. Perskie and Emily I. Bridges

The COVID-19 outbreak has impacted all aspects of life. In the face of massive uncertainty, companies should immediately address the effects of the pandemic on existing and future contracts and matters of corporate governance.

Here is a checklist regarding contract issues companies should consider:

Existing Contract Review

Companies need to review existing contracts where COVID-19 has or will impact performance. This may include determining whether you or your counter-party may assert force majeure, impossibility or impracticality of performance, or frustration of purpose as a defense to non-performance. For a closer look at these issues, please see “Not ‘If’ But ‘When’ — Navigating a Force Majeure Clause During the COVID-19 Pandemic.”

All contracts allocate risk among the parties. When reviewing your contracts, consider to what extent the terms of the contract allocated the risks associated with a global event, such as a pandemic, and, if so, to which party. If the contract did not allocate this risk to either party, then the non-performing party may benefit from the concepts noted above.

Finally, consider reviewing your existing insurance policies for business interruption coverage. For a more in-depth analysis, please see “Insurance Coverage and Coronavirus: Business Interruption, Event Cancellation and Travel Insurance.”


If you are unable to perform a contract, or can only perform in a limited manner, it is essential to provide proper notice to your counter-party. Take care in drafting this notice as it is likely to be a critical exhibit in any future breach of contract action. Companies should carefully review the notice provisions of any contract to ensure compliance with any content or delivery requirements (recognizing, of course, that certain methods of delivery may be compromised in light of the current situation). Send out any such notices early, before there has been a failure, rather than after you have been unable to perform. As delays continue, frustration will build, but your counter-parties are likely to be more understanding now while events are still in flux. They are also likely to appreciate your addressing issues earlier rather than later.

Strategy for Addressing Contract Issues

Given the nature of this global pandemic and the uncertainty around when it will end, it is highly likely that at least one of your contracts will be in danger of a breach (by either you or your contract partner). Determine whether you can work collaboratively with your counter-party to ensure as little interruption as possible, or whether you must pursue damages caused by a breach or shift the existing risk. This will be a fact-sensitive determination, and may change over time. Be sure to anchor any decision in the realities of the effect the pandemic is having on your business and your business partners. It goes without saying that this is not a time to take advantage of the crisis. For more detailed survival tips, please see “Survival Checklist for Businesses During a Pandemic.”

Corporate Governance

Your by-laws and other governance documents may not contemplate the inability of your board of directors or managers to meet for an extended period of time. Review your governance documents to determine:

  • What happens if your company cannot form a quorum for a meeting?
  • Who will sign checks if all authorized persons are impacted by the virus?
  • Can you hold board meetings by phone or teleconference?
  • Can board members vote by email?
  • How will you satisfy any meeting requirements during a quarantine or shelter in place order?

It is imperative to review your governing documents, organizational charts and distribution of authority to ensure your business can operate and govern itself with as few interruptions as possible. Good communication within the organization is key, so consider whether you need to update or expand your contact information for members within the leadership structure.

Dispute Resolution

Many contracts have existing dispute resolution clauses. Do your contracts require mediation or an in-person meeting? This may be impossible under current quarantine guidelines. Further, as courts are closing across the country, they are generally not well-suited to allow for remote advocacy, so many disputes are coming to a standstill. For future contracts, consider arbitration, which offers greater flexibility, contemplates remote hearings, and thus may be a better approach.

Future Contracts

While we all hope this current crisis is temporary, we may face continuing disruption over the next several months and perhaps even years. This is where an ounce of prevention is worth a pound of cure. Determine precisely why your existing contracts do not provide clear guidance on how to handle this current crisis. That review will help you and your future counter-parties address the allocation of risk from future disruptions. Further, pay particular attention to what government action directly affected your business as that may be a basis for downstream contractual relief.

These are just a few issues to consider when examining existing and future contracts and ensuring business operations during the COVID-19 crisis. We know that you are addressing a number of immediate concerns, but early review of your contracts and governance documents may help you weather the current circumstances and recover promptly once the immediate emergency has subsided.

Brian A. Berkley, Jacob S. Perskie and Emily I. Bridges are attorneys in Fox Rothschild’s Litigation Department. If you have questions about this alert, Brian can be reached at 215.299.2043 or bberkley@foxrothschild.com; Jacob can be reached at 609.572.2225 or jperskie@foxrothschild.com and Emily can be reached at 864.751.7618 or ebridges@foxrothschild.com.

As you may be aware, Pennsylvania Governor Tom Wolf issued an order late on Thursday prohibiting the operation of a business that is not life-sustaining.  The order went into effect at 8 p.m. on Thursday, March 19, 2020.  Enforcement is scheduled to begin at 12:01 a.m. on Saturday, March 21, 2020.  A comprehensive list of the types of businesses impacted by this shutdown order can be found here.

I am hearing tonight that the Pennsylvania Department of Community and Economic Development (DCED) is granting waivers to the Governor’s shutdown order on a case-by-case basis. Priority for waivers is allegedly being given to companies that serve or supply the health care industry. That said, I have heard of non-medical manufacturing operations getting waivers as well.

This DCED website has more information about the Governor’s order. You can apply for an exemption by sending an outline explaining the need for the exemption to “RA-dcexemption@pa.gov”.  You can also send questions about the Governor’s order to “ra-dcedcs@pa.gov”.  Finally, you may also call the following number: 877-PA-HEALTH.

Governor Wolf today also announced the availability of low interest disaster-relief loans for small businesses and non-profit companies in all 67 counties of Pennsylvania through the U.S. Small Business Administration.

I realize that none of this seems very comforting right now. We at Fox Rothschild intend to be with you every step of the way, and will update information as we learn more.  Our Coronavirus Legal Resource page is regularly being updated with new information. Godspeed, everyone.


In these uncertain times, maybe while washing your hands for the tenth or twentieth time today, you may be wondering about the legal impact of the coronavirus.  In order to try and both fill the void and provide some guidance, we at Fox Rothschild have launched a coronavirus legal information center. 

Topics covered right now include:

  • Addressing COVID-19 Data Privacy Concerns
  • An FAQ for common workplace concerns
  • Special issues facing companies in the hospitality industry
  • Immigration Changes

We will be updating and adding to this information as much as possible as the legal landscape in the fight against the coronavirus changes. Hopefully, this information will help you to negotiate this crisis with greater confidence.

Warmest wishes for health and safety, for you, your systems, your employees, partners and families. Godspeed.