Service industry crowdsourcing funds amid coronavirus shutdowns and scale-backs

March 20, 2020

Blog Post

Local governments, business organizations, hospitality groups and restaurants are turning to the public to help bridge the fiscal gap for employees during government mandated shutdowns and scale-backs. Many in the service industry have set up GoFundMe fundraisers to collect virtual tips or donations, are offering house-branded goods like t-shirts or bags for sale, or have asked that customers purchase gift cards for use once normal business resumes. As of midday on March 19, a search of “restaurant” on GoFundMe yielded 22,350 results. In Chicago alone, a circulating Google document titled “Chicago Hospitality Employee Relief Guide” lists over 340 GoFundMe and other campaigns to support the city’s restaurant workers. These fundraising efforts may offer business owners the ability to cover operating expenses, including, in some cases, employee payroll.

Delivery, pickup and carryout food service is still permitted in most areas and can offer a continued income stream while eateries remain closed for in-person dining. Third party groups and local news outlets are also stepping up to aggregate lists of restaurants still open for, or offering new, delivery, pickup and curbside service. Ordering and delivery platforms Seamless and Grubhub are presently deferring commission fees for impacted independent restaurants and have each set up a “Community Relief Fund,” with donations going to “charitable organizations supporting local restaurants and drivers impacted by COVID-19.” DoorDash is waiving commissions for 30 days for new partner restaurants.

Engagement with customers via email and social media appears more important than ever as digital media consumption has grown significantly during the coronavirus outbreak. Some bars and restaurants, and their employees, are hosting or suggesting that dedicated customers engage in “virtual happy hours” with friends, where participants can “tip” the GoFundMe virtual tip jar of their favorite bar or restaurant.

Gyms and fitness studios, many of whom have also been mandated to or have elected to close, are also urging their patrons to purchase gift cards or class packages for future use, or to consider not freezing or pausing their memberships (and, thus, continue to pay as usual) even while the business remains closed. Many are also offering virtual workouts—some free and some for a charge—via Zoom, Instagram TV, Facebook Live and YouTube to stay connected with their clients and customers.

In non-breaking news: making adequate disclosures in purchase agreements continues to matter. In a recent opinion stemming from a lawsuit for breach of contract and related claims, the United States Sixth Circuit Court of Appeals affirmed the district court’s award of summary judgment in favor of the defendants, former Wendy’s franchisees, who were sued by ultimate purchaser of their assets.

This decision only adds to to the growing circuit split on the application of the “hypothetical test” or the “actual test” in bankruptcy, and may lead a higher court to consider the issue. For franchisees in the Sixth Circuit who desire to reorganize in bankruptcy, however, this decision provides clarity about which test parties may use to determine if a contract could be assumed.

This ruling reveals the limits to the rejection power of the Bankruptcy Code. While a bankrupt franchisee can use bankruptcy to unburden itself of future monetary liabilities due to a franchisor, such franchisee cannot completely rid itself of those bargained-for equitable remedies that are there to protect the integrity of the brand and the confidential, proprietary information that the franchise arrangement is designed to protect.

Service industry crowdsourcing funds amid coronavirus shutdowns and scale-backs

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