Despite all best efforts there will come time during the relationship where the franchisee and franchisor may not agree or see eye to eye on issues. This is a reality in any relationship.
It may be that you don’t agree with how the national advertising dollars are being spent, or you may not feel that the new menu items being introduced are going to go well in your market. It may be that the franchisor is asking you to invest a large amount of money in upgrading the leasehold improvements and equipment in your location and you simply don’t have the money. Whatever the issues, there are several ways that these disagreements can be resolved.
One of the first approaches is to simply talk to the franchisor. Many issues can be resolved by simply having open, candid communication between the parties with mutual respect for each others viewpoint. Set up a face to face meeting and come prepared to present your case, but at the same time keep an open mind and be prepared to listen. You may have not had an opportunity to hear the research and logic that has gone behind the final decision. At the same time, the franchisor may not have taken into account franchisees first hand experience. If there are several franchisees dealing with the same issue, many mature franchisors have a franchisee advisory council where the issues can be dealt with as a group.
In the event that agreements still cannot be reached or the franchisor is simply not willing to listen, you do have options. The Canadian Franchise Association has an Ombudsman program. It is a free program available to its members. Both franchisees and franchisors may contact the CFA Ombudsman, who will listen to one or both sides and try to facilitate communication, the exchange of information and the exploration of alternatives. They look to find solutions that are amiable to both sides. All discussions are in complete confidence, done informally over the phone.
Your franchise agreement will also have typically clauses that address the issue of dispute resolution. Agreement may make reference to both parties required to go to mediation to resolve differences. Mediation is an effective way to resolve disputes that is quicker and often less costly than having to go to court. The costs of mediation are shared by both the franchisee and franchisor and will vary depending upon the complexity of the disagreement. The process is formal and involved both parties meeting face to face with a neutral third party facilitating discussions to reach an agreement that is acceptable to both parties. It is a process that is voluntary and non binding. You will want to find a mediator that both the franchisee and franchisor will agree upon who is neutral. If both parties cannot find a mutually agreeable solution then going to court still remains an option.
If an agreement cannot be reached through mediation then arbitration becomes the next step to resolving the differences. Whereas mediation is non-binding and focused on facilitating the parties finding a resolution that is acceptable to both, arbitration is binding and may result in a decision that is not acceptable to one of the parties. It is again a quicker more efficient process than going through the legal process and courts and often less costly. By going to arbitration, the parties agree to give up their rights to pursue the dispute in the courts.
The arbitrator must be agreed to by both parties. The arbitrator is ideally someone who understands law and franchising, often a lawyer or judge. The franchisee and franchisor typically must agree on an arbitrator. If an agreement can’t be reached then the franchise agreement will often outline a process where the franchisee and franchisor will both pick an arbitrator and the two arbitrators then pick a third. The arbitration process is then conducted before a panel of three arbitrators. This will result in the costs being as much as three times more as that of a single arbitrator, of which these costs are shared equally by the franchisee and franchisor. The arbitrator or panel of arbitrators will listen to both sides and review all the evidence. Depending upon the complexity of the dispute, this may take several days or several weeks. Once all material is reviewed, the arbitrator(s) will deliberate before making a final decision. The entire process may take several months.
The last method of dispute resolution is going to court. In some cases this may be the only way to find a solution although it is the most costly and the process can take years. This method is both franchisees and franchisors should look at as a method of last resort.
Disputes are often a part of any long term relationship. Recognize that the franchisor does have a right to evolve the brand and system and when you have potentially 100’s of franchisees you are bound to have differences of opinion and someone has to make the final decision. That decision is made by the franchisor. Good franchisors are sensitive to individual circumstances but at the same time are making decisions on what is best for the system as a whole, not based on individual franchisees circumstances and maintain uniformity so as to protect the integrity of the brand. Open communication and discussions will often resolve many issues. If not, there are alternatives to find a resolution.