Are Covid Immunity Laws Good for Franchising? Part 2: The Counterpoint
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Are Covid Immunity Laws Good for Franchising? Part 2: The Counterpoint

Are Covid Immunity Laws Good for Franchising? Part 2: The Counterpoint

[Editor: Last week we ran article by Fox Rothschild attorney John Gotaskie, arguing that broad immunity laws were not good for franchising. This week, a colleague provides a counter argument. Congress, if it ever can reach an agreement, will be the final arbiter.]

This post solely reflects the views of the author, and not that of Fox Rothschild or any of its other attorneys.

My vote is YES! In fact, I think they are essential! I thus respectfully disagree with my partner and colleague John Gotaskie.

John appropriately focuses on three stakeholders in discussing immunity legislation: business operators, employees, and consumers. In my opinion, Covid immunity laws are critical to franchisors, franchisees, franchise employees, and consumers.

Covid has pitched a small nuclear device into the franchise business. Overnight everything changed: franchisors and franchisees were faced with shutdown orders; obtaining needed inventory and supplies became problematic; some businesses retooled to offer contactless and/or delivery services; employees needed protective equipment; facilities needed to be adapted; and new distribution methods too often required additional investment.

In short, doing business became more expensive and more complex – at the same time revenues decreased. Now those same businesses face the challenge of reopening even as the Covid threat persists.

There is a regrettable absence of cohesive guidance on reopening safely. A franchisor trying to advise its franchisees, and a franchisee trying to protect its employees and guests, bear the risk of critical decisions that must be made in the regrettable absence of clear guidance. And what guidance there is changes frequently, sometimes for apparent political reasons and sometimes because medical professionals are learning more about the virus every day. 

While some businesses may take unfair advantage of the absence of clear rules, I believe the vast majority of businesses will strive in good faith to protect themselves, their employees, and their guests, even at the cost of added expense. Opening safely benefits every business.

I agree that a “reasonable effort” standard of compliance with any standard, and that excusing all but “gross negligence” goes too far, but I strongly disagree that the answer is narrow immunity. Nixing broad immunity legislation, save the ephemeral (and impossible) ideal statute, helps no one. In addition to exposing franchisors and franchisees to the additional costs of reopening, the absence of expansive immunity legislation exposes the industry to the unknown and unknowable expense of litigation based on varying legal standards.

Insurance costs can be expected to skyrocket, again at the expense of the business operator. When will the additional expense so overburden a business that it will not reopen… or will close? Losing businesses that employ millions of people (especially as the millions who lost their jobs because of the pandemic need to return to work) will not help the economy or consumers – who are themselves employees.

John argues that broad immunity legislation will discourage consumers who fear the virus from patronizing businesses. In truth, what will keep consumers at home is the degree to which the virus is controlled in the entire community. It’s just as Fed Chairman Powell explained: “The path of the economy is going to depend…on the measures we take to keep [the virus] in check.” That path demands attention to both medical and economic issues.

It’s a difficult calculus, but if businesses are expected to reopen despite the ongoing pandemic (and that is another philosophical discussion), businesses must be protected from the lack of consistent federal guidance. Good faith efforts to comply with reasonable guidance should be rewarded with generous immunity.

The Senate HEALS Act includes a level of immunity that may be too broad. But the House’s HEROES Act and the Senate’s HEALS Act (assuming it emerges substantially in its present evolving form) will be the subject of Congressional negotiations. With the ameliorating effect of the House, a better immunity bill – one that sets a clearer standard for compliance – should emerge.

That’s the kind of business immunity the franchise community needs!

Natalma (Tami) M. McKnew is a partner with Fox Rothschild. She concentrates her practice in the areas of franchising, dealerships, antitrust, and intellectual property. She also handles franchise formation and compliance, distribution system reorganizations, pricing issues, and trademark proceedings. Contact her at tmcknew@foxrothschild.com or 864-751-7608.

Published: August 14th, 2020

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