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How a franchise agreement may address concerns about future disputes

On Behalf of | May 9, 2024 | Franchise Agreements

Investing in a franchise can streamline the startup process for someone who wants to become their own boss. They can tap into a pre-existing customer base by purchasing an opportunity with a well-established domestic brand. In theory, franchise opportunities can be profitable. Provided that the franchisee obtains a decent territory and the franchisor provides the training and marketing support necessary, a franchise can quickly begin generating revenue shortly after a new location opens. Unfortunately, not all franchise arrangements prove to be mutually beneficial.

Sometimes, the franchisor takes issue with the operation of a specific location. Other times, franchisees might believe that the company has failed to fulfill promises made in the franchise agreement. Disputes about a franchise agreement could very easily damage the working relationship between a franchisee and a franchisor. An initial agreement could very well include special terms intended to address this exact scenario.

Dispute resolution clauses are common contract inclusions

Franchise agreements are massive contracts that address a broad range of operational rules and responsibilities. Frequently, a franchise agreement includes terms specifically addressing disputes between the franchisor and the franchisee.

Historically, mandatory binding arbitration clauses were popular in franchise agreements, but that has begun to shift in recent years. Binding mandatory arbitration requires that the parties sit down with a professional arbitrator, likely selected by the franchisor. That arbitrator hears the case much like a judge would and then rules on the best solution for the dispute.

People have become more averse to binding mandatory arbitration clauses, and some businesses have transitioned to alternative dispute resolution requirements instead. They may offer the option of arbitration or mediation with an understanding that litigation could still be possible if a viable solution isn’t established.

Non-binding arbitration can help facilitate discussions between the parties and might lead to a workable compromise. Mediation is a process that largely focuses on compromise and meeting in the middle. Both options could help resolve a franchise conflict outside of court.

Any franchisee embroiled in a dispute with the franchisor may need to carefully review their initial franchise agreement to determine what rules apply to their disagreement. Having proper help when navigating contract issues related to a franchise can potentially help people protect the investments they have made.

NOTICE: This blog is intended solely for informational purposes and should not be construed as providing legal advice. Please feel free to contact us with any questions you may have regarding this blog post.