UPDATE: March 25, 2020: The story has been updated to include newly released details of the Senate's $2 trillion coronavirus stimulus package, which includes more than $350 million to aid small businesses, according to Bloomberg.

Dive Brief:

Carrols Restaurant Group emailed employees Monday that the company would temporarily cut their pay 10% due to headwinds from the novel coronavirus outbreak, originally reported by Business Insider. The pay reduction would have gone into effect on March 30, and would have affected all employees, from restaurant-facing staff to executives, and be subject to state minimum wage laws.

On Tuesday, Carrols CEO Dan Accordino announced that restaurant-level workers would no longer have their pay reduced, according to a memo to employees emailed to Restaurant Dive. Accordino will also forgo his salary for three months.

"I have decided that we will become efficient in other areas," Accordino said in the email. "I have been here for 48 years and I respect your feedback; both positive and negative. I heard you and I made a mistake that we will now rectify before any action has taken place."

Dive Insight:

Carrols' pay cut reversal reflects a dangerous tightrope that U.S. franchisees must walk amid coronavirus: protect employees without gutting profitability.

Hourly employees are demanding paid sick leave and other protections as the virus spreads across the country. Last week, President Trump signed a coronavirus relief package into law that requires businesses with between 50 and 500 employees to provide two weeks paid time off for their staff. And though protecting customer-facing staff with new benefits is a big step forward for an industry notorious for its lack of sick leave options, franchise experts worry for operators' ability to foot this bill.

Last week, Business Insider reported that McDonald's pushed back against the paid sick leave mandate in an attempt to protect franchisee profitability. The International Franchise Association was also critical of the employee protection, claiming that it would leave "small businesses with a significant and immediate cash flow crisis for the next six to eight critical weeks."

On Friday, Senate Republican leadership introduced a bill that would expand the eligibility of small businesses to receive a loan of up to $10 million under the Small Business Act to support payroll, paid sick leave, COVID-19 testing and treatment and other benefit costs. The Senate reached a deal early Wednesday morning and is expected to pass the bill Wednesday afternoon, which includes $350 million in aid for small businesses, according to Bloomberg. Even if this bill passes Congress, it assumes that franchisees would be able to repay the cost of this aid once the impact of coronavirus diminishes, which would be a tall order for operators already managing thin margins.

S&P Global Ratings downgraded Carrols' from "B" to "B-" due to anticipated headwinds and estimates there will be sharp declines in the near term, according to a report shared with Restaurant Dive.

"The downgrade reflects our view that Carrols' cash flow and profitability prospects are grim under current conditions, especially considering its weakened restaurant base owing to last year's acquisition of underperforming units," S&P Global said in a statement. "Despite its ability to continue operating drive-thru, take-out, and delivery service, we expect sharp declines in traffic over at least the next several weeks."

With these factors in mind, Carrols' initial move to reduce pay 10% from the top to the bottom of the corporate ladder makes sense. But restaurants also need to keep long-term optics of their stop-gap decisions in mind. Restaurant workers and diners will remember which chains reduced protections and pay for their most vulnerable staff in a bid to keep their operations moving. Even if a brand survives the worst of the coronavirus outbreak with slightly more profitability, negative brand perception could alter a restaurant's future.