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Appointing the right mediator to resolve a franchise dispute.

Updated: May 16, 2023

Using a franchise mediator

Mediation is by far the most effective and least costly method of resolving a franchise dispute but not surprisingly, success is dependent on appointing the right mediator.

In a mediation the mediator is neutral and non-judgemental. He or she works with each party in private and assists them to reach a negotiated settlement. The objective being to provide both with a better outcome than they would have had after a costly legal battle in court. As the relationship between a franchisee and a franchisor is unlike that found in most other business situations, the parties to the dispute should appoint a mediator who has an understanding and experience of the industry.

Most franchisees operate a small to medium sized business and many franchisors are in a similar situation, albeit probably on a larger scale. They work in a state of co-dependency that is unlike a usual buyer / supplier relationship. Another factor not found elsewhere in business is the network of franchisees that usually exists; this, especially for the franchisor, is an important consideration. The outcome of the dispute may pose a reputational risk to the brand. This will be a consideration for the franchisor and also the franchisee if he or she intends to remain in the franchise. If a mediator can be appointed who has personal experience on both sides of the franchisee – franchisor relationship a high level of credibility will be established. This will greatly increase the likelihood of a successful outcome for both parties.

This isn’t to suggest that the outcome of a mediation will always be a compromise. If one party has an unsustainable position and the other an unassailable one, the agreed settlement is likely to broadly reflect that situation. But the party who has had to concede most ground will still be much better off than they would have been if the dispute had been settled in public, at great cost, in open court. In a worst-case situation, the judge could order the losing party to pay the legal costs of the other side as well as their own.

In many cases in a franchise relationship, if the dispute can be resolved amicably, it will be in the interests of both parties to continue to work together. The franchisee will have invested in the business and developed a local customer base that will generate ongoing revenue. The franchisor will continue to receive management service fees. On the other hand, if the relationship is irrevocably damaged the franchisee will lose their hard work and financial investment and the franchisor may have difficulty in attracting a new franchisee to a tainted territory. The brand will also be damaged by an inability to service existing customers. In a mediated settlement, that the parties have negotiated themselves, there is a far higher likelihood of an amicable outcome. This will be even more likely if the mediator has personal franchising experience.

To paraphrase world-leading mediator and hostage negotiator, William Ury, when he was defining the key skills needed for effective mediation; “It is not enough to simply assist them (in this case the franchisee and the franchisor), to be effective you need to know what it is like to be them”.

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