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Franchises thrive when there is a strong relationship between the franchisor and the franchisee. However, disputes are common in franchise relationships as each party has their own vested interests. When something goes wrong, this can quickly turn into a tense disagreement, perhaps requiring costly litigation. This article will explain the steps you should take to resolve a franchise dispute in the UK.
Causes of Franchise Disputes
Conflicting interests in a franchise relationship can cause disputes to arise. Franchisees invest a significant amount of time and money in their franchised business. Similarly, you will have invested heavily in your businesses as a franchisor. The reputation of your brand, one that you have built and expanded over time, is of great value to you.
Franchise disputes can arise over many different aspects of the franchise relationship. Events that franchise disputes may result from include:
- infringement of contractual obligations by the franchisee or franchisor;
- issues with the payment of fees owing;
- the level of support provided by the franchisor; and
- the misuse of intellectual property.
Discover the key legal and commercial issues to consider when buying a franchise.
Steps to Resolve a Franchise Dispute
Before proceeding to litigation, you must undertake several steps. Let us explore these in further detail below.
1. Assessment Before Dispute Resolution
You should assess the dispute before you or the franchisee formally initiates a dispute resolution process. To evaluate a disagreement, you should:
- ensure that you communicate honestly and respectfully;
- keep records of your communication with the other party; and
- understand your obligations.
The British Franchise Association (BFA) highlights the importance of resolving disputes with good faith as the priority. Maintaining direct, honest and respectful communication when resolving disputes is crucial. Create opportunities for an open and continuous communication channel between yourself and the other party. Furthermore, ensure you keep records of all these interactions.
During this early stage, you should also become familiar with your obligations as a franchisor. Read your franchise agreement. It should contain your responsibilities as the franchisor. It will be worthwhile to consider other documents, such as your franchise operations manual, which typically further define your responsibilities and the franchisee-franchisor relationship. The franchise agreement should also include a transparent process for resolving disputes, which you should follow.
2. Internal Resolution
Before resorting to litigation, you should attempt to settle the dispute internally. It is often the best course of action to resolve the matter amicably and avoid unnecessary legal costs.
A key contributor to successful internal resolutions is an open channel of communication where you and the other party can share your respective sides of the argument. You must listen carefully to each other and address issues directly.
It is possible to resolve disputes during this early stage of the process. Addressing the issue as soon as possible increases the chance of a successful resolution. The earlier you resolve a dispute, the less time and money you will spend trying to find a solution. You avoid further delays and expenses, and you and the franchisee can move beyond this conflict.
3. Alternative Dispute Resolution (ADR)
Alternative dispute resolution (ADR) refers to methods of dispute resolution that do not involve litigation. There are different types of ADR. Each form involves various methods and techniques of dispute resolution.
| Arbitration | Like a judge in a courtroom setting, a neutral arbitrator (or panel of arbitrators) makes a decision based on either party’s arguments. This decision is binding. |
| Mediation | A neutral third party (a mediator) facilitates the communication between each party, helping them reach an agreement. |
| Negotiation | Involves each party communicating directly. This can be unassisted or assisted by a neutral party. Informal negotiation may have already begun if you have attempted a stage of internal resolution. |
| Conciliation | Like mediation, conciliation involves a neutral party who actively proposes solutions to the dispute. |
People resolve many disputes through ADR. These methods keep the cost of dispute resolution lower than if you were to seek legal action.
4. Litigation
Litigation is a last resort for dispute resolution. Sometimes, all the previous steps are exhausted, and litigation is unavoidable. Whether or not you should seek litigation depends on the circumstances of the dispute and whether you have attempted the out-of-court alternatives detailed in the previous steps.
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Legal Advice for Franchise Disputes
Legal action is a last resort. This involves instructing a lawyer and can lead to court action. However, you can seek a lawyer’s advice anytime during the process of dispute resolution. Legal advice and support throughout this process can be very beneficial to you.
As a business owner, having access to legal advice can be crucial. Consider legal protection as a helmet for a cyclist; it is not always necessary, but you will be relieved you have it when needed. Legal protection can safeguard your business from possible legal disputes and financial harm.
Key Takeaways
To resolve a dispute relating to your franchise, you should first assess the nature of the conflict and ensure that communication is direct, respectful, and recorded. Attempt a process of internal dispute resolution. If this fails, consider using an alternative dispute resolution method. Ultimately, you may need to pursue litigation as a last resort,
If you require legal advice on a franchise dispute, 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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