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Strong franchisor-franchisee relationships are vital to maintaining a successful franchise network. For franchisors, franchise disputes can cause stress, drain precious resources, and pose risks to the health of your business. In some cases, the conflict between a franchisee and a franchisor can lead to the termination of the relationship. Disputes may result from miscommunication, mismatched interests, and unmanaged expectations. This article will explain how franchisors can mitigate the risk of a franchise dispute arising from the start and throughout their franchising journeys.
What Are the Common Causes of a Franchise Dispute?
A franchise dispute can occur in many ways. Common causes include:
- franchisor misrepresentation;
- breach of contractual obligations;
- fee increases; and
- franchisors providing inadequate levels of support.
The following table considers each of these possible causes.
| Cause | Explanation |
| Franchisor misrepresentation | Misrepresentation means giving misleading information. Sometimes, franchisees claim that the franchisor misrepresented the franchise opportunity. This can result from the franchisor: + falsely presenting the franchise opportunity; + making a careless statement about the opportunity; or + saying something they believed to be accurate but needed to be corrected. |
| Breach of contractual obligations | Another common cause of franchise disputes is either the franchisee or the franchisor breaching the terms of the franchise agreement. |
| Fee increases | Franchise fee increases may lead to tension between the parties. Late payment or lack of payment may also breach the terms of the franchise agreement. |
| Franchisors not offering adequate levels of support | Franchisors must provide initial training and ongoing support to their franchisees. Sometimes, franchisees believe their franchisor is not providing adequate support. |
We explore below four ways you can minimise the risk of the above franchise disputes arising.
1. Honesty and Transparency
It is vital to be honest about the prospects and financial projections of the franchise opportunity from the beginning of the franchise relationship. You should refrain from overselling to prospective franchisees. After all, there is no guarantee a franchisee will be successful, even if you have a successful existing business. Instead, you should manage franchisees’ expectations. Otherwise, they may claim that you misrepresented the franchise opportunity.
You may reduce some risk of conflict by establishing clear expectations and maintaining open communication channels within the franchise relationship. As a franchisor, you must also fulfil your contractual obligations and deliver on your promises. For example, if you promise to provide training, you should set out a training programme and make sure you deliver it to all new franchisees.
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2. The Franchise Agreement
Another critical pillar of mitigating the risk conflict in your franchise relationships is establishing a solid foundation. You can form a strong foundation within the franchise agreement. The franchise agreement is a legally binding contract franchisors share with each franchisee.
Features of a franchise agreement include:
- the duration of the agreement;
- the franchisee’s rights;
- an outline of training and support;
- the fee structure; and
- agreement renewal and termination conditions.
You should create robust franchise agreements that set out your responsibilities and obligations and those of your franchisees. In saying that, you should precisely state the terms of the agreement to set clear expectations for your franchisees.
3. Franchise Operations Manual
A comprehensive franchise operations manual supplements the franchise agreement. The manual is a large document franchisors provide and includes all the information a franchisee needs to know to run their franchise. A franchise operations manual can act as a guide and additional support for franchisees. A robust manual will help franchisors avoid disputes as it will set very clear expectations for franchisees and detail how the relationship will operate.
4. Dispute Resolution
Some franchise disputes are more difficult to avoid than others. If you are involved in a dispute with franchisees, it is essential to maintain respectful communication. On that note, you should keep records of all communication.
You may attempt to resolve the conflict internally first before resorting to costlier measures. If an internal dispute resolution process is unsuccessful, you may wish to resort to alternative dispute resolution (ADR). ADR includes various pathways for various measures for out-of-court dispute resolution. The final stage would be to pursue litigation.
This handbook covers all the essential topics you need to know about franchising your business.
Key Takeaways
Some tips to mitigate the risk of disputes within your franchise include:
- being honest and transparent with franchisees;
- delivering on your promises;
- managing expectations from the outset; and
- drafting a clear franchise agreement.
Franchisors can mitigate the risk of disputes, but they may still arise. If a dispute arises, try to resolve it internally. However, if the internal resolution process is unsuccessful, you may use alternative dispute resolution methods, like mediation, before pursuing court action.
If you would like advice on avoiding conflicts within your franchise or legal assistance with an ongoing issue, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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