If you are a franchisee frustrated by your Franchisor’s unwillingness to adapt to COVID-19 and permit reasonable changes to the franchise system during this unprecedented time, the New Jersey Franchise Practices Act (NJFPA) may give you the leverage you need to make meaningful progress towards a solution that works for both you and the franchise system.

Should a Franchisor refuse to make any accommodations, and it is later determined that the Franchisor has violated the NJFPA in the process, the Franchisor could potentially be on the hook for both a Franchisee’s business damages and even its attorneys’ fees, certainly an unenviable position.

Businesses across the country have been forced to shutter their doors as mandated by state and local orders. In the wake of these closures, we have all seen many businesses adapt to these changes, offering curbside or no-contact delivery, creating family or quarantine specials, or offering products outside of a company’s brand or typical offerings. Part of it is just old-fashioned ingenuity and business sense. Part of it is businesses trying to stay afloat in this difficult time.

And while countless stories have now been told of Franchisors and Franchisees working together to weather the COVID-19 storm, many franchisees are in the unfortunate position of not seeing eye-to-eye with their Franchisor regarding what needs to be done to adapt -- and survive -- in this new climate.

In the face of a franchise agreement that may appear to provide a Franchisor with virtually unfettered discretion to limit a Franchisee’s ability to stray from the standard franchise operations, is a franchisee stuck? For qualified New Jersey franchisees, there may be some recourse from the New Jersey franchise statute.

Unreasonable standards of performance upon a franchisee

Indeed, the NJFPA generally prohibits Franchisors from imposing “unreasonable standards of performance upon a franchisee.” New Jersey courts have held that the hallmark of an “unreasonable standard” is “arbitrariness” or where “economic ruin” would result from the standard. Critically, what was once a perfectly reasonable requirement under a franchise agreement could suddenly become “unreasonable” during the unprecedented COVID-19 pandemic.

In fact, Franchisors could also potentially find themselves in violation of the NJFPA if they fail to make reasonable accommodations for a New Jersey franchisee that directly leads to the franchisee going out of business. If the accommodation is minor, a Franchisor’s refusal to make such an accommodation may be considered an unlawful constructive termination in violation of NJFPA.

The bottom line is this – New Jersey franchisees may be able to use the New Jersey Franchise Practices Act to convince a Franchisor to make reasonable adaptations to a franchise system to enable franchisees to survive during COVID-19 lockdowns. While courts have provided little guidance as to how the NJFPA’s provisions would be applied during an unprecedented pandemic like the one we are currently living through, the NJFPA can be a powerful tool for franchisees seeking to convince franchisors to adapt to the new realities of conducting business in the Garden State.