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How a franchisee can win a franchise dispute.

Updated: May 16, 2023


Chess pieces

Planning and strategy are vital.


Prior to formalising the disagreement with your franchisor, you need to decide if you want to remain as a franchisee or leave. This is a key question because the answer will determine the best strategy to adopt.

If your decision is to leave, the franchisor will probably be keen to encourage an orderly sale of your business. This will provide you with a sale price, thus reducing the amount of your claim. It will also ensure the continuity of the business and the income stream for your franchisor. For the franchisor the benefit of a sale is that as there is less chance of a settlement creating a precedent that could affect other franchisees. As a result, your franchisor may be more willing to agree favourable terms for the remainder of your claim.


If you wish to remain as a franchisee, try to anticipate how your franchisor will react. Avoid allowing the ensuing dispute to become personal. Keep your complaint as simple as possible and don’t exaggerate your financial loss. Keep negotiations factual, evidence based, unemotional and non-confrontational.


Whatever your decision, it is sensible to only start a battle that you are confident of winning. Avoid the temptation to include trivial matters that are merely irritating rather than actually causing you a financial loss. These will provide an opportunity for your franchisor to undermine your argument. If negotiations fail and the matter is litigated, trivialities will add to the complexity of the trial and increase the legal costs.


franchisees having a meeting

In a franchise dispute the most important document is the franchise agreement. For your claim to be successful you will probably need to be able to show that your franchisor has failed to comply with one or more of the clauses in the agreement. The operations manual is also an important document to which the same observation applies. Courts are unsympathetic to franchisors who have failed to comply with their own agreement. However, to gain the maximum leverage from this it is important that you have strictly complied with both documents yourself. You should avoid actions that can undermine your credibility or, even worse, be used in a counterclaim. Be very wary of taking legal action if you have breached the franchise agreement.


Initially at least, don’t use social media to publicise your complaint. A franchisor is more likely to agree to a negotiated settlement if confidentiality can be maintained. A grievance that is publicly aired on social media will encourage misinformation and exaggeration. This will create hostility and make discussions more difficult. Going public too early may also leave you open to a complaint that you have brought the franchise into disrepute. Most franchise agreements include an obligation on the part of the franchise not to cause reputational harm to the franchise.

Being able to offer confidentiality is a trump card that should not be squandered by giving in to the temptation of sharing your grievances on Facebook, Twitter or WhatsApp.

The widespread use of non-disclosure agreements confirms that franchisors will always try to avoid making publicly aired concessions that could set difficult precedents or affect other franchisees.


Prior to formalising your complaint, gather evidence to support your claim. Be properly organised; keep records of dates and times and make notes of conversations that you have had with your franchisor that are relevant to your claim.


Try to find a solution that will provide both you and your franchisor with a satisfactory outcome. That needn’t be a compromise, in fact a compromise in a dispute situation is nearly always less satisfactory than one in which both sides gain a benefit. Identifying a solution that works for both sides will depend on the industry and the type of franchise. Try to disregard your relative positions and instead concentrate on the interests of your franchisor as well as your own.


Franchisors want happy franchisees who are profitable rather than disgruntled ones who are likely to cause trouble. As a result, an amicable settlement is always their preferred option. They have no desire to litigate because however strong their position is there is always the possibility of losing a court case. Even if they win, they will probably suffer some unrecoverable costs. Accordingly, by linking your complaint to a solution you will greatly increase the likelihood of negotiating a positive outcome.


Franchise agreements nearly always include a dispute resolution clause. If your franchisor refuses to negotiate an amicable settlement you should follow the process described in the agreement. The next step is almost certain to be mediation rather than litigation. This is far less costly than litigation and, if you wish to remain in the business as a franchisee, it will be less damaging to your relationship with your franchisor.

 

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