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How to win a franchise dispute

Updated: May 16, 2023


Discussing a franchise dispute

The old ‘5-P’ adage ‘proper planning prevents poor performance’ was never more appropriate than when resolving a franchise dispute. This is equally applicable whether you are a franchisee or a franchisor. For the aggrieved party, regardless of which side of the relationship you are on, the planning should start before the matter ceases to be a discussion and becomes an actual dispute.


Not surprisingly it is important to have a clear objective and carefully consider how achievable it is. If the desired outcome was secured would there be any wider implications for either side that would make it unworkable? Would it set any adverse precedents for the other side? If so, they are unlikely to agree on amicable terms. Some thought should be given to how the other side will react to increasingly contentious negotiations. Not everyone is good at handling difficult situations. At the very top of any list of considerations is if the desired outcome will include an ongoing working relationship within the franchise.


For both sides, it is important to avoid the dispute becoming personal. Concentrate only on the interests of those involved rather than their positions. This is still important in a case that will include a severing of the relationship because negotiations become much more difficult when there is animosity and hostility. Always bear in mind that, as long as something close to the desired objective is achieved, a negotiated settlement is far less uncertain, time consuming and expensive than litigation.


A franchisor will be unlikely to agree to anything that would set a precedent or have implications for other franchisees. If the desired outcome will compromise this for the franchisor the desired outcome is unlikely to be achieved unless the franchisee can guarantee confidentiality. For this reason, a sensible franchisee will resist the temptation to share their grievance with their peers on social media. In fact, the ability to offer the franchisor a guarantee of confidentiality is one of the most valuable bargaining chips that a franchisee has at their disposal. But, as they say, once it’s gone, it’s gone, and a non-disclosure agreement linked to a dispute that is public knowledge is much less attractive to a franchisor than a completely private, raising of the complaint, negotiation and settlement.


High on the list of areas that a franchisor will regard as sacrosanct is compliance with post termination clauses. These will require a franchisee who is leaving the franchise to carry out certain actions such as handing back the operations manual and removing the name and logo from a shop front or from vehicles. They will also bar the ex-franchisee from competing in the same area with a similar business for a period of time, usually a year. Of all the post-termination conditions this restraint of opening a competing business is frequently the most important for a franchisor and the one that is least likely to be part of a negotiated settlement.


A franchisor has numerous ways of avoiding a public confrontation with a troublesome or disruptive franchisee. Of these the most obvious is to buy the franchisee out and operate the local business as a company owned branch. A variation on this is to engineer and support a buyout by an adjoining franchisee.


A franchisor can greatly strengthen their position and improve their bargaining power by ensuring that they are fully complying with the franchise agreement. It is a long-established principle that the courts will go hard on a franchisor who is not fully discharging their responsibilities, as defined in the agreement, because it is their agreement. The franchisor stated the rules, and they must comply with them.


As the franchisor is almost always deemed to be in a more dominant negotiating position it is important to be seen to be dealing reasonably and in good faith with the franchisee. Emails should be factual but non-confrontational and if possible supportive. This will not only establish reasonableness if the matter does end up being decided in court by a judge, it will also help to prevent the dispute from becoming personal.


For both sides it is always best to encourage direct, in-person, meetings rather than letters, emails or Zoom calls. This will avoid or minimise the misunderstandings or ambiguities that can be present in written communications. It will assist amicable dialog and make a resolution more likely. For both sides, it is essential to have all the necessary documentation to hand and a checklist of the points that need to be raised to support their argument.


Successful negotiations don’t need to include agreeing a compromise or making concessions. These can be avoided by good planning that includes careful research, pre-positioning and establishing achievable objectives. Human beings tend to prefer to do what they want to do. A desired outcome can invariably be achieved by convincing the opposing party that it is in their best interests or at least it is the lesser of the probable bad outcomes.

 

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