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How a franchisee can reduce the legal cost of resolving a franchise dispute.

Updated: May 16, 2023

franchisees meeting a legal re[presentative

Specialist solicitors play a vital role in the franchise industry. They are essential when a company decides to franchise their business model and when a prospective franchisee decides to join a franchise.

They are usually the first choice to resolve a dispute, enforce a franchise agreement or to assist a franchisee who has been the victim of misrepresentation.

The only problem is, solicitors are very expensive. This makes it all too easy for the legal costs to mount up to a point that makes the dispute even more difficult to resolve.

This problem is usually felt more acutely by a franchisee who has been mis-sold a franchise and is under-performing against the financial projections that they were given. In this situation, with depleted funds, the prospect of appointing a solicitor and embarking on a legal action is not very attractive. But, with cash draining away, the situation will only get worse, so something has to be done.

At this stage it would be sensible to engage professional help, in the form of a franchise consultant. A skilled consultant will be able to use industry experience to prepare a claim that is based on facts and supported by documentation. He or she may also be able to identify other areas of claim resulting from deficiencies in the franchisors management and recruitment methods. A solicitor may later be needed to resolve the dispute but at this stage a consultant will be more cost effective. Also, a consultant will have more flexibility to carry out research.

An email to the franchisor will almost certainly receive a response containing a firm denial of any responsibility for the predicament that the franchisee is facing. Mis-selling will be flatly denied, and under-performance will be blamed on the franchisee’s lack of effort or inability to apply the training that has been provided. It is obvious that the franchisor will adopt this position because to do otherwise would destroy the credibility of the franchise and open up the possibility of similar claims from other franchisees.

Chess pieces

The franchisee must therefore convince the franchisor that they have even more to lose if the dispute was settled in public at a court hearing. Even if the franchisor has a strong defence there is always a possibility that the judge could decide that the franchisor was guilty of misrepresentation or some other bad treatment of the franchisee. A verdict such as that would be catastrophic and cause immense damage to the franchise. It would make the recruitment of more franchisees difficult and encourage claims from other franchisees. The difficulty is that the process of convincing the franchisor is far from easy.

The first step is to demonstrate that the initial rebuttal is unacceptable. This is best done by writing formally to the franchisor clearly setting out the complaint. This should be accompanied with supporting documents including notes of meetings with dates and times. The letter should request a response within a definite timescale. It should be clear, factual, and non-aggressive. It should not contain personal criticisms of the individuals involved.

A final paragraph should explain the outcome the franchisee is seeking to achieve. This is essential and will allow the franchisor to consider the risk of litigation against the cost of settling the dispute. To avoid an immediate rejection the franchisee should make a settlement offer as realistic as possible. To ensure that momentum is maintained the letter should request that if the dispute cannot be resolved by negotiation a mediator should be jointly appointed.

It is important for the franchisee to try to anticipate how the franchisor will react. Inexperienced franchisors are more likely to make mistakes. Being eager to recruit franchisees they may lower the minimum suitability standards or accept an applicant who only has marginally sufficient funds. This will increase the possibility of misrepresentation. Ironically, an inexperienced franchisor is likely to be more aggressive towards a franchisee who is challenging their recruitment methods or management of the franchise. The franchisee should take comfort from the fact that the inexperience and hostility will increase the possibility of the franchisor making mistakes and not handling the dispute well.

How the dispute is handled from this point will depend on many different factors but the general principle is to keep applying firm pressure and restating that a mediator should be appointed. If that is not accepted by the franchisor, with much of the ground work and preparation complete, a solicitor with franchising industry litigation experience will be needed.


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