Maintaining a Strong Franchise Relationship

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Table of Contents

• The Franchise Relationship
• Steps to Take Before Joining the Franchise Network 
• Steps to Take to Manage Issues With the Franchisor 
• Speak to Other Franchisees 
• What Should I Do During Mediation?
• Key Takeaways

Is your franchise relationship causing you more grief than you had imagined? Have there been breakdowns? Is the franchisor altering its approach and failing to deliver the promised level of support or assistance? This article offers a guide for franchisees to manage the franchisor-franchisee relationship and provides tips for resolving potential conflicts. 

The Franchise Relationship

The franchise relationship inherently carries an imbalance of power. This can lead many franchisees to perceive the franchisor as having all the “power”, particularly during disputes. Given this imbalance, as a franchisee, you must be acutely aware of your rights. This awareness is particularly crucial when anticipating a potential dispute or when a breakdown in the franchise relationship is likely to lead to a dispute. 

Steps to Take Before Joining the Franchise Network 

The first steps in maintaining a strong franchise relationship occur before you even become a franchisee. As a franchisee, you must conduct effective and extensive due diligence of the franchisor and the franchise network. Ensure that you speak to a range of other existing franchisees and former franchisees. This information should also be contained in the disclosure document provided to you by the franchisor. Be sure to discuss these franchisees’ experiences working with the franchisor and their relationship. Doing so will provide you with an idea of whether you might be able to work well with the prospective franchisor. Otherwise, make sure you thoroughly review all documents provided to you by the franchisor, particularly the franchise agreement and disclosure document. You should always seek independent legal advice before agreeing to sign these documents and join the franchise network.

Steps to Take to Manage Issues With the Franchisor 

Even with thorough due diligence, problems can often emerge during your time as a franchisee. As such, it is essential to know how to deal with an issue you have with the franchisor.

Some steps in how to approach the issue are to:

1. Communicate the problem to your franchisor by writing a summary of the issue and providing practical examples of its impacts on your business. Indicating what you would like the franchisor to do is also highly beneficial. For instance, you might state what outcome you are after and how you propose that outcome be achieved. You must speak with your franchise lawyer about putting this summary into writing. This way, you can carefully articulate both the issue and the desired result.
2. Next, you will want to speak to the franchisor about resolving the matter without escalation. Remember to document any agreed-upon resolution in writing or, preferably, a deed of agreement. In these preliminary stages, maintain a cooperative approach to foster amicable solutions.
3. If negotiations with the franchisor have been prolonged without a resolution, consider seeking assistance from a mediator. You should ask your franchisor if they agree to appoint a mediator to facilitate discussions and resolve ongoing issues between you. The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) can assist you with this process and appoint a mediator. Before you reach mediation, they can also provide free advice on how to resolve the matter independently.
4. Mediate the matter. Typically, the expenses involved in mediating the dispute will be shared between you and the franchisor. These include the costs of using the mediator and the costs of room hire for the mediation. The role of the mediator is to assist both parties to reach a mutually acceptable resolution. If the franchisor refuses mediation, you can issue a formal notice under the Code. This notice requires the franchisor to make reasonable efforts to resolve the dispute and attend mediation if you are unable to resolve the dispute amongst yourselves.

Speak to Other Franchisees 

If negotiations with the franchisor have not been successful and you are currently in mediation, consider reaching out to other members of the franchise network. You can inquire whether they have faced similar issues to your own.

Combining forces with other franchisees can help give you greater bargaining power. This will be highly beneficial when negotiating with the franchisor to secure a more favourable result in settling the dispute. Additionally, under the Code, the franchisor is not permitted to engage in conduct that would restrict your ability to associate with other franchisees.

What Should I Do During Mediation?

1. Prepare as much as possible.  Ensure that you have all your legal documentation and relevant correspondence ready to be presented. This will allow you to give substance to your allegations. For example, if you claim that the franchisor has been lazy in providing specific support services as per the franchise agreement, ensure you can prove this claim with evidence. Speak with a franchise lawyer if needed.
2. Outline your matter and present evidence to support your claim. Make sure you communicate your desired outcome.
3. Adhere to any obligations you may have as a party to the mediation. For instance, you must observe any active and enforceable confidentiality obligations in the franchise agreement. Mediation is a confidential setting, so you must keep the discussions of the meeting private.
4. Consider all options to resolve the matter. Sometimes, a monetary settlement may be the most appropriate option. However, there will often be alternatives. Discuss these with your franchise lawyer, accountant, partner, spouse, or anyone who should be consulted before agreeing to any resolution.
5. Be flexible and reasonable. Compromising on certain aspects of your claim does not equate to losing to the other party. Indeed, most commercial resolutions require some element of compromise on the part of both parties. Negotiation is often a to-and-fro exercise that involves prioritising interests. Any settlement arrangement must, without fail, be put into writing.

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Typically, mediation leads to a resolution. If it does not, however, you should continue to try to resolve the matter without entering the Courts. Particularly in the franchising sphere, litigation is a slow and costly exercise that can negatively impact your franchise business. For this reason, it is crucial that you try to reach a resolution.

Key Takeaways

The franchise relationship is an important partnership, and working together is in both parties’ interests. Both you and the franchisor require the other to succeed and operate lawfully. As a franchisee, in order to manage your relationship, be sure to:

1. do your due diligence before joining the network to be sure you can work productively with the franchisor;
2. if you have a problem with the franchisor, communicate the issue clearly and outline what you would like to be done to resolve the issue;
3. speak to other franchisees to see if they are having similar issues with the franchisor; and
4. if mediation is required, ensure you are well prepared and keep your options open on how to settle the dispute.

The franchise relationship can be tumultuous, so if you have an issue with your franchisor, it is essential to ensure a quick resolution of the matter without commencing litigation. 

If you need help managing your franchise relationship, our experienced franchising lawyers can help. As part of our LegalVision membership, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today at 1300 544 755 or visit our membership page.