You probably receive some level of support from your franchisor, which is essential to maintain your day-to-day business operations. This degree of interaction will vary across different franchises. However, you may receive too little or too much franchisor involvement, which can lead to conflict and disputes. Your franchise agreement will generally bind you for at least five years, so it is important to take compliance matters seriously. This article will outline some of the first steps to handling a dispute with a franchisor. 

1. Manage Your Expectations  

You should manage your expectations towards the franchisor by understanding the limits of your influence and legal power. If you are not receiving the support you expected from the franchisor, it is likely because you are one of many franchisees. Before you decide that you are dissatisfied with the franchise system, talk to other successful franchisees in your network. This contact will enable you to:

  • learn what others are doing to grow their business successfully; and
  • gain support from the entire franchise network rather than just the franchisor.

Importantly, you cannot expect the franchisor to provide all the support. From your early discussions with the franchisor you will likely have built up confidence in the: 

  • reputation of the brand; 
  • potential for sales profitability in your territory;
  • training system; and
  • marketing structures.

However, a franchisor is not solely responsible for the success of your business. 

Disputes can also arise over the franchisor’s allocation of the marketing fund. Your franchisor will be responsible for coordinating promotional material, to ensure consistency in their brand strategy across the franchise network. Notably, they are only somewhat accountable for how they use these funds. Your franchise agreement will likely oblige the franchisor to report on how they use the funds each year. To this extent, you will have some insight into the use of your franchise fees to help promote your business and the franchise as a whole.

2. Understand the Terms That You Have Agreed To 

You need to understand the terms that you have agreed to in your franchise agreement operations manual. This is because you are obliged to operate your business in accordance with these documents. It is particularly relevant to consider your: 

  • minimum performance requirements; and 
  • rights to terminate the franchise.

You must ensure that you have met all of your requirements under this agreement when handling a dispute with a franchisor.

Minimum Performance Requirements

You must ensure that you meet any minimum performance or service delivery requirements set out in your franchise agreement. Your franchise agreement will likely allow the franchisor to inspect and audit your operations to ensure compliance, by:

  • speaking with customers; or 
  • accessing information contained in any electronic equipment.

Additionally, your franchise agreement will generally allow the franchisor to update business operation manuals periodically. These changes may include:

  • changing payment systems; and
  • updating the list of approved suppliers.

Termination of the Franchisee

If you violate the terms you have agreed to under the franchise agreement, you may receive a formal notice of breach. This is a legal document which is issued by a franchisor who is considering termination. If you fail to rectify the breach, the franchisor will have the right to terminate you as a franchisee.

3. Understand Your Legal Position as a Franchisee

Your priority should be to resolve the dispute in cooperation with the franchisor. Avoid increasing tensions or aggravating the issue through retaliation and non-compliance. This is because you may be:

Your franchise agreement may have required you to sign as a guarantor. This means that you have agreed to be personally accountable for compliance with the terms of the contract. If this is the case, ensure that you understand the extent to which you may be responsible for any failure to comply with your obligations as a franchisee. 

4. Understand Your Rights as a Franchisee

Franchising Code of Conduct

Your franchisor is bound by the Franchising Code of Conduct (the Code), meaning they must attempt a dispute resolution process before either party decides to:

  • terminate the agreement; or 
  • take a cause of action in court. 

Specifically, the Code established the Office of the Franchising Mediation Adviser (OFMA) to offer dispute resolution services. If your dispute is not resolved three weeks after submitting a dispute notice to OFMA, they can step in to organise a mediation session and facilitate correspondence between the parties.

Australian Competition and Consumer Commission

Additionally, the Australian Competition and Consumer Commission (ACCC) is the governing body that investigates compliance with the Code. The ACCC has powers to:

  • investigate the franchisor’s operations;
  • commence legal proceedings; or 
  • issue infringement notices to the franchisor.

You can submit a complaint to the ACCC regarding a franchise agreement dispute. This could be an effective way to show the franchisor that you are taking the issue seriously. 

However, there are practical limitations to seeking a resolution through the ACCC. They have insufficient resources to manage the high volume of complaints they receive, meaning that: 

  • they only make decisions on complaints that are worthy of an investigation; and
  • investigated complaints need to have an impact on the broader application of the Code. 

You should also be aware that you still need to comply with the dispute resolution procedures contained in your franchise agreement.

5. Get Legal Advice

If you have followed the dispute resolution process set out in your franchise agreement, you may wish to go to court. To do this, you will need to understand the legal basis for your claim. This means that you must have a reason to take action against the franchisor for the complaint you have lodged.

For example, you could go to court if the franchisor breached the franchise agreement or misrepresented information before signing the contract.

It is a good idea to have a lawyer assess the strength of your case, as litigation can be a costly investment.

Key Takeaways

Your number one priority when handling a dispute with a franchisor is to resolve it politely, so that you do not escalate the conflict. You should first assess whether the issue is the responsibility of the franchisor or something you have neglected yourself. Then, ensure that you are complying with your own obligations under the franchise agreement to prevent termination or unwanted personal accountability. With these issues in mind, you can:

  • submit a complaint to the OFMA or ACCC;
  • terminate the agreement; or
  • receive legal advice and go to court.

If you are looking for advice on handling a franchise agreement dispute, contact LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.

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