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How to resolve disputes between franchisees and franchisors

Written by Pip Wilkins on Tuesday, 12 September 2017. Posted in Insight

Whenever a conflict arises, it's wise to consult either an arbitrator or a mediator

How to resolve disputes between franchisees and franchisors

Franchising provides an ideal opportunity for franchisors to expand their business without the expense and operational burden of opening company-owned outlets. It also provides budding franchisees with a way to become self-employed with the proven model and ongoing support of a larger brand. However, while disputes are rare, they can arise.

As with any business relationship, staying on good terms with the other party is crucial for your ongoing partnership and I strongly recommend working towards an amicable resolution without third-party intervention wherever possible. The mutual trust that has been built is an incredible asset in franchisors’ and franchisees’ relationship. Fortunately, many disputes can be solved by referring to the franchise agreement.

But in cases where internal efforts have been exhausted and the resolution is still not clear, it may be time to look for outside help to resolve a disagreement. Luckily, the bfa has a free informal conciliation process available to all members, which allows both parties to represent their case and work towards a solution. All bfa members agree to participate in this process should a dispute arise when they are given membership. Having an impartial third party can provide a fresh perspective, sometimes highlighting that a dispute is due to simple miscommunications. In those cases the road to reconciliation is simple. The informal conciliation process is not legally binding and is purely designed to aid in communication between franchisor and franchisee.

Nevertheless, sometimes this is not enough to resolve conflicts. In those cases it can be wise to use either the mediation or the arbitration schemes provided by the bfa. While both schemes utilise qualified franchise specialist solicitors, they differ in some important ways.

Mediation

Mediation is a structured negotiation between the involved parties. It’s a relatively cheap, quick and confidential process. A mediator is an independent third party who facilitates the negotiations and does not give away an award or make a decision but simply brings the parties together to find a commercial solution. Either party has the freedom to walk away from negotiations at any stage of the process. All negotiations take place on a without-prejudice basis and parties are not forced to settle their dispute during this process.

Arbitration

An arbitrator is also an independent third party. The difference is that arbitrators make a decision after hearing both sides. The arbitrator’s decision is final, binding and enforceable. The arbitrator will charge fees for undertaking the arbitration and costs can be awarded against the parties as determined by the arbitrator. The arbitration process can take longer and as such will likely incur higher costs than the mediation process.

Why consider alternative dispute resolution? The benefit of choosing mediation or arbitration over litigation is that litigation can be an expensive, uncertain and stressful process which parties often look to avoid. That being said, the obvious first step in any conflict should be to talk and to hopefully save your relationship.

About the Author

Pip Wilkins

Pip Wilkins

It wouldn’t be an overstatement to say we’ve got franchising royalty on board in the shape of Wilkins. The bfa chief executive boasts more than 15 years of experience in the franchise sector and is a regular event speaker both at home and abroad.

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