How is a dispute between a franchisor and franchisee resolved?

Shelley Nadler writes:

The first thing a franchisor and franchisee in a dispute situation should do is have a face to face meeting to see if they can find a solution that will satisfy both parties.

In some cases, a franchisor will accept a solution that involves the franchisee selling its business. If this does not resolve the dispute, the franchise agreement should set out how disputes are dealt with.

Often, franchise agreements specify that the parties have to seek to resolve the dispute by mediation before litigation in the courts is commenced and will specify the body dealing with mediation.

Mediation is where an independent mediator encourages the parties to resolve the dispute themselves through discussions in order to seek a compromise. Mediation is confidential, quicker and less costly than going to court.

The cost of the mediation is shared by the parties.

The mediator does not give an award or make a decision if an agreement is reached by the parties to settle a dispute.

If a settlement to a dispute cannot be reached through mediation, the franchise agreement will state if the dispute is to be dealt with by the courts or through arbitration. In either case, you will need to instruct lawyers.

Arbitration is similar to litigation, as there is an individual who acts as an arbitrator to decide the issues and makes a decision that will be binding on the parties.

Shelley Nadler is a legal director in Bird & Bird’s international franchising team and has many years’ experience of advising on all aspects of franchising.