Tariffs may seem like a headline reserved for economists and politicians, but at last week’s International Franchise Association (IFA) Legal Symposium in Washington D.C., they were front and center in nearly every room. From breakout panels to sidebar conversations, franchise lawyers zeroed in on how shifting tariff policies are impacting supply chains, vendor relationships, and the very language in franchise disclosure documents. As legal and business leaders grapple with balancing compliance and cost predictability, the IFA Legal Symposium shed light on the real-world legal implications of tariffs on the franchise model. Below I attempt to answer the most pressing questions addressed during the event:
- Can a Franchisor Mention Tariffs in its FDD? Tariffs are likely to increase cost estimates in the Item 7 Initial Investment Chart of a Franchisor’s Franchise Disclosure Document. However, the exact impact yet on these estimates or other sections of the FDD is not yet known. No franchise attorney wants delay the state franchise registration or renewal process by including disclosures that may be deemed a “impermissible disclaimer” by an examiner. The IFA has reached out to the Franchise Project Group of NASAA on guidance on how to address this issue in a way that will pass regulator scrutiny and is waiting for feedback.
- Are Tariffs a “Force Majeure” Event? Toni Brown, Kim Magyar and Vanessa Miller presented an extremely informative workshop entitled Supply Chain Management in Franchise Systems – Legal Risks and Strategies for Compliance and addressed the looming specter of tariffs on distribution and supply agreements with vendors. According to the panel, franchisors should carefully examine force majeure provisions when negotiating any new agreements and ensure tariffs are not listed in the definition. Tariffs are not a true force majeure event as they don’t make performance impossible – just more expensive.
- Can a Vendor or Supplier Avoid Performance based on Commercial Impracticability? The short answer is no. Courts have consistently rejected arguments that tariff-related price increases excuse performance under arguments of commercial impracticability. According to the Supply Chain panelists, only one court accepted that a price increase of 572% constituted commercial impracticability. However, in that case it was likely partially due to the fact that the customer received a windfall that it did not then pass along to the negatively impacted supplier. Courts rarely excuse performance based on government action unless they fundamentally alter contractual obligations.
- Can the Risk of Bankruptcy Excuse Supplier Performance? No, again the Supply Chain panel explained that even bankruptcy or insolvency do not excuse performance unless a contract becomes objectively impossible to perform under current financial conditions. Courts DO NOT want to become involved in a business issue when a business claims it will be bankrupted. The legal standard is completely objective and requires that any company facing these circumstances would be driven out of business. That is an extremely high hurdle.
- How are Franchisors and Suppliers Likely to Address Tariff Issues? The Supply Chain panelists anticipate that suppliers are unlikely to explicitly allocate tariff costs because they will want to be competitive to secure the business. However, they expect to see more companies reserving the right to discuss pricing adjustments that were not in place at the time of the quotation, inclusion of economic hardship clauses, and promises to engage in good faith negotiations.
As the franchise landscape evolves in response to global trade tensions, understanding the legal boundaries around tariffs is more crucial than ever. The IFA Legal Symposium underscored that while tariffs may not excuse performance under most legal doctrines, their financial and contractual consequences cannot be ignored. Franchisors would be wise to stay ahead of these developments—revisiting disclosure language, scrutinizing vendor agreements, and preparing for good faith renegotiations where needed. In a world of rising costs and regulatory uncertainty, legal clarity is not just helpful—it’s essential.