Disaster Response and Legal Liability for Franchisors

Sure, franchising can be a safer bet than starting a business from scratch, but that doesn’t mean it's foolproof. Shit happens, as they say. And in the world of franchising, a franchisor isn’t just responsible for itself; it’s also for all of the franchisees that operate underneath its brand. That is why effective disaster response and legal liability management are so crucial to ensure business continuity and protect all stakeholders involved. 

1851 Franchise spoke with some expert franchise lawyers to create a comprehensive guide on best practices for franchisors.

Creating a Disaster Response Plan

To start, a detailed disaster response plan is the foundation of effective disaster management. 

“Franchisors need to have a full plan for how to handle disasters,” said Mark Hirsch, co-founder of Templer & Hirsch. “This plan should have clear instructions on what to do in an emergency, how to communicate and how to help partners. Making sure everyone knows their jobs and responsibilities in case of a crisis through regular training sessions is the first step to a good plan. For example, after Hurricane Katrina, our firm helped a number of businesses understand their legal responsibilities and deal with their insurance claims, which showed how important it is to be ready.”

A well-structured plan should include protocols for various types of disasters such as natural disasters, pandemics and cyber-attacks. 

“Franchisors can transform disaster response into a strong point by having a thoughtful plan,” said Jamie E. Wright, founder/CEO of the Wright Law Firm. “Start with a comprehensive disaster strategy that includes clear emergency protocols and up-to-date contact information. Ensure franchise agreements clearly outline each party's responsibilities during a disaster, reducing confusion and disputes.”

Establishing Clear Communication Channels

Timely and accurate information flow is also critical during a disaster in order to establish clear communication channels and protocols among franchisors and franchisees. “This includes designating a point of contact for disaster-related communications,” said Nicolas Tang, founder and managing director of Farallon Law Corporation.

Hirsch underscores the importance of maintaining up-to-date contact information for all franchisees so they can receive real-time updates in case of an emergency. “Current technology, like mass notification systems, can speed up responses and ensure that messages are always sent the same way,” he said. “Communication at the right time was very important for many companies during the COVID-19 pandemic, for example. It reduced uncertainty and improved coordination.”

Regular Training and Mock Drills

Once plans are in place, regular training sessions for both franchisor and franchisee employees are essential to ensure everyone knows their roles and responsibilities during a disaster, Tang says. “Organize mock drills to simulate disaster scenarios and test the effectiveness of the disaster response plan,” he said. “This helps identify any gaps or areas for improvement.”

Wright also suggests engaging workshops and interactive online modules to keep everyone informed and ready. “Regular training for franchisees on disaster preparedness is essential,” she said. This proactive approach ensures that all parties are well-prepared and can respond effectively when a disaster strikes.

Legal Documentation and Insurance Coverage

Robust legal documentation is also a vital component of disaster preparedness. Ensuring that all changes to operations, policies and procedures during a disaster are well-documented can help address legal concerns and protect the franchisor from potential liability.

“Writing down everything you do to respond to a disaster is essential,” said Hirsch. “This paperwork can show that the franchisor did what they could to protect their partners, which is very important in court cases. After the 2011 tornado outbreak, having very good records helped some of our clients show they were proactive, limiting their liability.”

Similarly, Hirsch highlights the importance of having strong insurance plans that cover a wide range of disasters. “Franchisors should ensure they have comprehensive insurance coverage, including general liability, property insurance, business interruption insurance and cyber insurance,” he said. “Reviewing these rules regularly with a lawyer can help find any possible holes. Also, clear franchise agreements that spell out who is responsible for what can stop disagreements and lower the risk of liability.”

Proactive Legal and Mental Health Support

Proactive legal support and a focus on mental health can enhance disaster response and recovery as well. “Franchisors should encourage a mindset of strength and support,” said Hirsch. “Giving franchisees tools like mental health support, financial help and recovery planning can help them get back on their feet faster.”

Lastly, Wright stresses the importance of partnering with legal experts to stay ahead of the latest regulations. “By being proactive and prepared,” she said, “franchisors can navigate crises effectively, protect their brand and support their franchisees.”

Every great franchisee had help buying a franchise. Want to learn more about how 1851 helps franchisees find the right franchise opportunity? Visit www.1851growthclub.com and start your journey.