Print PageFranchise Tutorial 21: Intro to Dispute Resolution
Despite best efforts, there may come a time during a franchise partnership where franchisee and franchisor disagree. This is a reality in any relationship. Maybe you disagree with how national advertising dollars are being spent, or think new menu items being introduced will not sell well in your market. Many franchisors have a franchisee advisory council where issues can be dealt with as a group.Another approach is to simply talk to the franchisor. Many issues can be resolved by open communication between the parties with mutual respect for each other's viewpoint. Set up a face-to-face meeting and present your case, but at the same time keep an open mind and listen. You may have not heard the research and logic behind the decision. Similarly, the franchisor may not have fully taken into account franchisees' firsthand experience.
If agreement still cannot be reached, there are options. The Canadian Franchise Association (CFA) has an Ombudsman program, a free program available to all franchisees and franchisors in Canada. The Ombudsman will listen to one or both sides and try to facilitate communication. All discussions are completely confidential and done informally by phone. Contact the CFA Ombudsman at 866-443-8255.
A franchise agreement will typically address dispute resolution. The agreement may make reference to both parties being required to go to mediation to resolve differences. Mediation is an effective way to resolve disputes that is quicker and often less costly than going to court. The costs of mediation are shared by both the franchisee and franchisor and will vary depending upon the complexity of the disagreement. The process is formal and involves both parties meeting face-to-face with a neutral third party facilitating discussions to reach an acceptable agreement. Mediation is voluntary and non-binding. Find a neutral mediator that both the franchisee and franchisor agree upon.
If an agreement cannot be reached through mediation then arbitration becomes the next step to resolving the differences. Whereas mediation is non-binding, arbitration is binding and may result in a decision that is not acceptable to one party. It is a quicker and more efficient process than going through the courts and often less costly. By going to arbitration, the parties agree to give up their rights to pursue the dispute in court.
The arbitration must be agreed to by both parties. The arbitrator is ideally someone who understands law and franchising, often a lawyer or judge. The franchisee and franchisor typically must agree on an arbitrator. If an agreement can't be reached then often the franchisee and franchisor will each pick an arbitrator and the two arbitrators then pick a third. The arbitration process is then conducted before a panel of three arbitrators. This will result in the costs, shared equally by the franchisee and franchisor, being as much as three times more as that of a single arbitrator. The arbitrator(s) listen to both sides and review all evidence. This may take several days or several weeks. Once all material is reviewed, the arbitrator(s) deliberate before making a final decision. The entire process may take several months.
The last method of dispute resolution is going to court. In some cases this may be the only way to find a solution, although it is the most costly and can take years to resolve. This method is one both franchisees and franchisors should look to as a last resort.
Disputes are often a part of any long-term relationship. Good franchisors are sensitive to individual circumstances but make decisions for the system as a whole. Communication and discussions often resolve many issues. If not, it is prudent to understand the resolution alternatives.
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Disclaimer: The opinions or viewpoints expressed herein do not necessarily reflect those of the Canadian Franchise Association (CFA). Where materials and content were prepared by persons and/or entities other than the CFA, the said other persons and/or entities are solely responsible for their content. The information provided herein is intended only as general information that may or may not reflect the most current developments. The mention of particular companies or individuals does not represent an endorsement by the CFA. Information on legal matters should not be construed as legal advice. Although professionals may prepare these materials or be quoted in them, this information should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.
Posted Date: January 2011