It is not uncommon for the franchisor and the franchisee to disagree. Ordinarily these disputes arise out of a misunderstanding about rights and obligations under the contract. More often than not, the parties will allege that the other has misled them.

In franchising there is no shortage of complaints to the Australian Competition and Consumer Commission (ACCC). When the parties are in a dispute, the ACCC makes the following recommendations to franchisees:

  • Make contact with the franchisor to try and reach a resolution. It is important that you clear any misunderstandings that may have developed as a first point of call;
  • If talking it over did not lead to a mutually beneficial result there are Alternative Dispute Resolutions procedures provided for in the Franchising Code of Conduct (“the Code”);
  • On top of this, franchise agreements typically cover formal complaint-handling processes for the particular franchise system; and
  • The Code also provides its own complaint-handling procedure for franchisees to try to resolve these disputes without spending too much on legal fees.

What steps should be taken when following the Code procedure?

There are several steps involved in the Code dispute resolution procedure, including:

  • You need to communicate in writing your concerns describing the problem from your perspective, your desired result and what you see as a possible solution;
  • You and the franchisor must then make some attempt to reach mutually-acceptable outcome;
  • After three weeks of failed attempts to reach a conclusion, the matter can be then allocated to a mediator.

Is mediation an effective way of resolving the dispute?

Going to court is normally much more expensive than mediation. Around three quarters of all matters that go through mediation result in a legally binding settlement that is agreeable to both parties. If this process fails and you still feel as if you were deceived by your franchisor, keep in mind that the ACCC will only get involved in matters where there has been a clear violation of the Code or alternatively the Competition and Consumer Act 2010 (Cth). If you do not understand the next steps that are required, it is essential that you seek legal advice from a franchise solicitor.

Upon receiving a complaint, the ACCC will review the complaint based on various standards. The ACCC must be capable of proving the alleged misconduct in order to initiate court proceedings. As such, the ACCC will examine each matter on its merits and the reasonable prospects of success. The more evidence the franchisee has in his/her possession, the more likely the ACCC will follow up the complaint and proceed to court.

The moral of the story here is that legal advice should be sought and research should be done prior to entering into any contractual agreement with a franchisor.

If you’re considering becoming a franchisee, research and investigate any contractual terms that you believe place you at a disadvantage. Have a franchise lawyer review the terms of the various documents for closure and speak with experienced franchisees about their experiences working with franchisors in the past. This is an excellent way of verifying the representations made by a franchisor.

Conclusion

It might also be worth developing a strategic business plan and reviewing the projected earnings with a financial adviser. These claims of potential earnings might prove inaccurate and should be treated with caution.

Last, but not least, verbal promises should be put into writing. Ask for written confirmation wherever possible. It is possible that this will become evident in the (unlikely) event of a dispute. If you believe that there is a likely possibility of a “full-blown dispute” occurring with your franchisor, legal advice from a franchise lawyer should be sought.

Lachlan McKnight

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