Best Practices for Resolving Franchise Disputes

Franchising thrives on collaboration and the franchisor-franchisee relationship is a mutually beneficial one when handled correctly. A strong franchisor provides a successful model, and dedicated franchisees execute it locally. As in any industry, disagreements can arise, leading to disputes that can threaten this arrangement. Fortunately, there are certain steps that can be taken to resolve these disputes efficiently and minimize damage to the ongoing business relationship.

Early Intervention

The longer a disagreement goes on, the more complicated positions become. When a concern surfaces, prioritize open and honest communication. A franchisor who dismisses a franchisee's legitimate complaint risks letting the frustration grow. 

Early intervention allows both parties to address the issue objectively. A franchisor can understand the franchisee's specific challenges and provide targeted support. A franchisee can clarify concerns and work with the franchisor for a solution that benefits everyone. A timely conversation can often nip a potential dispute in the bud.

The Franchise Agreement

The franchise agreement forms the bedrock of the franchisor-franchisee relationship as it clearly outlines the rights and responsibilities of both parties. When a dispute arises, revisiting the agreement can provide a roadmap for resolution.

For instance, the agreement might specify communication channels for specific issues or outline a dispute resolution process. It could detail performance expectations or marketing guidelines, providing a reference point to evaluate the source of friction. Both parties should carefully review the relevant sections of the agreement to understand their contractual obligations and identify potential remedies within the framework of the document.

Alternative Dispute Resolution (ADR)

Litigation, while an option, can be costly, time-consuming and leave both parties feeling unsettled. Fortunately, a range of Alternative Dispute Resolution (ADR) methods offer efficient and constructive solutions.

Mediation: In a confidential setting, a neutral third party facilitates communication between the franchisor and franchisee. This mediator guides both parties towards a mutually agreeable solution, fostering open discussion and creative problem-solving. The mediator doesn't impose a decision but helps both parties find common ground.

Arbitration: Similar to a court case, an arbitrator (often a retired judge or experienced lawyer) hears both sides and issues a binding decision. This can be faster and less formal than litigation, but it doesn't allow the same level of flexibility as mediation.

Choosing the right ADR process depends on the specific nature of the dispute and the desired outcome. Mediation is often preferred for its collaborative nature and ability to preserve the business relationship. Arbitration can be a good option when parties need a definitive solution but wish to avoid the high costs of court.

Seeking Legal Counsel

While ADR methods offer effective dispute resolution, seeking legal counsel from an attorney experienced in franchise law is still highly advisable. A lawyer can help navigate the intricacies of the franchise agreement, advise on the best course of action and represent you during an ADR process or, if necessary, in court.

Franchise disputes can disrupt successful businesses. However, with a few reasonable best practices, these issues can be resolved efficiently and constructively. Remember, the goal shouldn’t be to “win the battle,” but rather to find a solution that strengthens the long-term viability of the franchise system for both the franchisor and its franchisees.

To learn more about the legal aspect of franchising, check out these related articles on 1851 Franchise: 

• The Key Legal Terms You Need to Know in Franchising
• Decoding Franchise Disclosure Documents: A Detailed Study
• What Are the Legal Risks of Owning a Franchise Business?