Mediation: Why it is the best way to resolve a franchise dispute

It is inevitable that even in the best managed and ethically conscious franchises a disagreement will occasionally arise.

Mediation: Why it is the best way to resolve a franchise dispute

It is inevitable that even in the best managed and ethically conscious franchises a disagreement will occasionally arise. If it is not resolved, it can develop into a dispute and if that is not settled amicably one party or the other will probably reach for their copy of the franchise agreement. This will lead them to the ‘dispute resolution’ clause which is a feature of all professionally drafted franchise agreements. Most of these agreements set out a process for resolving a dispute and state that before litigation is commenced the parties will engage in mediation. This follows the increasing reliance by the UK judicial system on alternative dispute resolution (referred to as ADR) of which mediation is the most widely used element.

Mediation is very effective, having a success rate for resolving disputes in excess of 90%. It is far quicker; with a lead time of only a few weeks as opposed to many months that it takes for a legal action to be listed and tried in court. This is vitally important because one of the worst aspects of a trial is the effect on the parties of the long-drawn-out legal process. Another major advantage is that it is far less expensive. 

Ethical franchisors and diligent franchisees who wish to continue together after the dispute is settled have much to lose by litigating because it is difficult to re-establish a working relationship after they have faced each other in court. The advantage of a mediated settlement it is that the parties, with the aid of the mediator, who decide how the dispute should be settled. This greatly assists them to put the matter behind them and in many cases return to an amicable working relationship.

The mediation process starts with the parties agreeing to jointly appoint a mediator. The choice of mediator is very important. The symbiotic relationship between a franchisee and a franchisor is an important factor in the franchising industry. Accordingly, a far higher success rate will be achieved if a specialist franchise industry mediator is appointed. 

Apart from the obvious objective of resolving the dispute there are numerous other benefits to be gained by mediating. In a mediation the parties are in control of the outcome as opposed to a court case in which they delegate the decision to a judge. A judicial decision will always produce a winner and a loser. In many cases both parties will lose because costs awards can sometimes appear to be unfair. Inevitably both sides will have invested a large amount of time and emotional energy which is impossible to recover. Very seldom does the winner feel totally vindicated and able to recover all their costs. 

A mediator’s role is not to pass judgement but to help the parties to find a negotiated settlement for themselves. In some situations, this might be to agree a compromise, in others it might be to help one party to see that their position is not as winnable or their claim  as valuable as they thought it was. Sometimes, it could assist one of the parties to see the futility of winning a pyric victory. Most mediations are successfully concluded in a single day. A few are finalised within a few days as a result of the process having taken place. In either case a large amount of time and money will have been saved by both parties either compromising or arriving at a similar decision to a court; but without the legal costs. 

An often-overlooked benefit, particularly for a franchisor, is that a mediation is private, as opposed to a trial in open court. This allows a franchisor to make concessions without the fear of setting a precedent that might spark repercussions with other franchisees. For this reason, settlement agreements often include a non-disclosure clause. 

If a dispute arises in a franchise relationship it is very unlikely that either of the parties will end up feeling happy and completely vindicated but mediation provides the best method of securing an outcome that both can live with.  

Tony Bowman
Tony Bowman