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Resolving disputes between franchisees and franchisors with mediation

On Behalf of | Apr 11, 2023 | Uncategorized |

Most franchise agreements include provisions that spell out complete details of the partnership, from starting and operating the franchise to the right to use the franchisor’s logo and trademark. It details responsibilities, territory restrictions if any, and fee structures. Your agreement should also cover operational standards, available or mandatory training, and, most likely, how to resolve disputes.

Many franchise agreements require mediation as a method to resolve disputes. The idea around mediation is that a neutral party assists in handling disagreements without going to court. It usually is quicker, cheaper, and less complicated.

What you should know about mediation

Mediation can be a great tool to help resolve disagreements that you can not solve independently. While mediation can work well for some issues, it may not be suitable for complex problems or issues that escalate beyond regular negotiation tactics. If your franchise agreement includes mandatory mediation for dispute resolution, there are some conditions you should consider:

  • In order for mediation to result in a resolution, both parties must enter the process in good faith. Mediation is a type of negotiation, so if one or both parties are unwilling to listen to the other party’s point of view, mediation will fail.
  • Sometimes, even when both parties are entering the process in good faith, it still does not work. At this point, the process moves forward to an arbitrator or court. The condition is commonly detailed in the franchise agreement.
  • Though mediation is less expensive than court proceedings, it is not free. The cost is equally shared by the franchisee and franchisor. Most frequently, the mediation takes place in the area where the franchisor is located, so there may be travel expenses, expenses in renting a venue, and the cost of the mediator’s time.
  • If one side or the other makes an offer during mediation, you are not obligated to accept it. If you turn down the offer, you can further pursue it in arbitration or court.

Common reasons for franchise disputes

There are several reasons for franchise disputes. The most common reason typically revolves around communication. Poor communication could result in a lack of training, confusion about duties and responsibilities, or lack of support. Sometimes franchisees believe they were misled into thinking they would make more money or that they would have more support from the franchisor. Changes in procedures that are not communicated sufficiently are also common causes of disputes.