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Five years ago, “Bitcoin”, “blockchain”, and “cryptocurrency” were not in the common lexicon.  Five years ago, Bitcoin, the seminal cryptocurrency, was valued at approximately $275.00 (a staggering 2,749,900% return on investment for those who obtained it for less than a penny in 2010), but very few accepted it as a method of payment.  In fact,…

The Department of Justice backed off no-poach challenges in franchise agreements in 2019, but the state doubled down. The result? Washington state challenged a raft of no-poach/no-hire provisions in 225 franchise systems, resulting in agreements requiring franchisors to agree not to enforce the offending provisions not just in Washington but nationwide. On April 28, 2020…

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.

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

This was updated on April 15, 2020, to reflect changes issued by Illinois and Indiana.

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…

In a recent opinion, the Texas State Office of Administrative Hearings (SOAH) disagreed with a Texas franchisor that claimed rent and other fees received from its franchisees were mandated by fiduciary duty to flow through to other entities and therefore not taxable revenue.

The Franchise Agreement and the Franchise Disclosure Document of the franchisor, …