Strategies for Legal Resolution in Franchise Disputes

Disputes are inevitable in any business world, including franchising. However, there are several effective strategies to resolve these conflicts without damaging relationships or incurring high costs. 

Experts Kimberly Best, a dispute resolution expert and founder of Best Conflict Solutions, LLC, and Mark Hirsch, co-founder of law firm Templer & Hirsch, provide valuable insights into these strategies.

The Mediation Advantage

Best emphasizes the benefits of mediation as a primary tool for resolving franchise disputes. 

“Mediation is a voluntary, confidential process for resolving conflicts with the help of a trained neutral third party — the mediator,” she said. “Mediators ethically cannot give legal advice during mediation. Unlike a judge or arbitrator, a mediator doesn’t make decisions for the parties involved. The mediator’s role is to facilitate communication and help the parties find their own mutually acceptable solution.” 

Mediation offers several advantages over other dispute resolution techniques:

• Cost-Effective: Mediation is significantly less costly than court proceedings.
• Time-Saving: The mediation process is much faster than litigation.
• Relationship Preservation: Without the acrimony of the legal process, relationships are not damaged and, in many cases, can even improve.

“The goal of mediation in franchise disputes is not just to resolve immediate conflicts,” said Best, “but to improve the overall franchisor-franchisee relationship and strengthen the franchise system as a whole.”

Early Intervention and Training

To prevent conflicts from escalating, Best recommends early intervention mediation and training in interest-based negotiation techniques. “You can have a clause in your agreements that requires mediation as the first step in dispute resolution,” she said. “This can prevent conflicts from escalating and preserve relationships.”

Additionally, training franchisors and franchisees in interest-based negotiation can lead to more flexible and sustainable resolutions. This technique focuses on underlying interests rather than positions, offering more choices and flexibility.

In-House Dispute Management

Another innovative approach is to have a dedicated in-house dispute resolution professional. 

“Teach the organization dispute management skills and hire a neutral third party to be your in-house dispute resolution professional,” Best said. “This person is not accountable to management, yet is that neutral, confidential support for conflict.”

This in-house professional can provide follow-up sessions to ensure agreements are being implemented and address any new issues, thus continuously improving the overall franchisor-franchisee relationship.

Arbitration as a Formal Alternative

Arbitration is an effective resolution method that provides a legally binding resolution without the extended timelines and high costs associated with court cases, according to Hirsch. “In this more formal process,” he said, “an arbitrator makes a ruling everyone must follow. It works faster and costs less than going to court.”

Direct Discussion

Sometimes, the simplest solution is the most effective. “Disputes can often be settled through direct discussion instead of going to court,” Hirsch said. “Both sides can talk over and agree upon the terms.” 

Ensuring all parties fully understand the business agreement from the start can prevent many disagreements.

Court as a Last Resort

When all else fails, court proceedings might be necessary. Hirsch acknowledges this but cautions about the downsides. “Going to court might be the only option when nothing else works,” he said. “It takes a long time and costs a lot of money, but the outcome is legally binding.”

Conflict is normal in any business environment, but effective dispute resolution strategies can mitigate its impact. Mediation, early intervention, arbitration and direct discussion are all viable options that can save time, money, and relationships. 

To learn more about the legal side of franchising, check out these related articles:

• Top 15 Legal Firms for Franchises 2024: Expert Legal Guidance
• The FTC's Noncompete Ban: What it Means for Franchisors and Franchisees
• What Are the Legal Risks of Owning a Franchise Business?