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Franchisees are the customer-facing representatives of your brand. Their success is your success. Having unhappy franchisees can cause your brand and franchise network to suffer. It is important to deal with any issues quickly and appropriately.

If a franchisee fails to maintain the required standards or breaches a clause in the franchise agreement, the results could be poor customer satisfaction and a negative opinion of the brand as a whole.

Here are some key tips to minimise and resolve issues where they arise.

1. Minimise Risks From Arising in the First Place

Quality recruitment and realistic expectations on the part of both parties and a culture of openness and honesty are often the key determinants of a successful and dispute-free franchise network.

2. Don’t Oversell the Opportunity

Disputes often arise from feelings of betrayal or misunderstandings relating to expectations. The easy way to avoid these issues is not to over-sell the opportunity.

3. Be Very Selective on the Franchisees You Take On

The temptation to grow the network quickly is a strong one, but must be resisted if it means recruiting the wrong kind of person. You should remember that discipling and breaching a franchisee takes a lot of time and effort and it is much easier to take on a franchisee than exiting a franchisee.

4. Ongoing Training and Support

Once a franchisee is in the network, ongoing training and support can reduce the risk of underperformance and ill-discipline in the network.

5. Meet With Franchisee at First Instance

It is surprising how many franchisors issue breach notices or even attempt to terminate a franchise without meeting with the franchisee. Talking to the franchisee will give you a basis on which to determine whether the problem is one that can be resolved with additional support.

6. Carefully Consider Breach Notices or Termination

The franchisee may simply be going through a temporary difficulty or crisis. Family issues may have arisen, or a new competitor has opened up nearby. Issuing a breach notice or attempting to terminate this kind of franchise may waste substantial resources and cause poor morale in the network even if there is a legal basis for breach and/or termination.

7. Develop a Plan of Action

Where issues escalate, develop (and have the franchisee sign off) a plan of action to recover the operation. This may involve some temporary financial support or suspending levies. If you do provide financial assistance, make sure it is strictly confidential, to avoid setting a bad precedent for other franchisees. The arrangement should be in writing and should state clearly the nature of the arrangement and the support you will provide.

8. Issue a Breach Notice

A franchisor can issue a breach notice where the franchisee’s behaviour been contrary to an express term of the franchise agreement or operations manual. A breach notice must comply with the Code. If the franchisee remedies the breach within the period specified, this will resolve the immediate issue and bring the franchisee into compliance with the prescribed system.

What is Considered a Breach?

You should ensure your franchise agreement clearly sets out what is considered a breach to avoid any ambiguity regarding whether or not the franchisee has fixed the issue. For instance, you may require the franchisee to undergo customer service additional training (if permitted under your franchise agreement) and if they do not attend that training, you may issue a breach notice over that conduct.

Dispute Resolution Under the Code

The Code specifies the process that parties should follow when a dispute arises. You can outline an alternative method for dealing with disputes in your franchise agreement, however, a franchisee can elect to trigger the process specified in the Code even if an alternative is set out in the franchise agreement.

Resolving a Dispute Under the Code

  1. Party prepares and issues a formal dispute notice to the other side
  2. Parties then make efforts to agree on the process of attempting to resolve the dispute (agree on format for meetings, location of meeting, etc.)
  3. If parties cannot agree how to resolve the dispute after 21 days, they can refer the dispute to a professional mediator

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Do you have a question about resolving a dispute with your franchisee? Get in touch with our franchise lawyers on 1300 544 755 or fill out the form on this page.

This article was an extract from LegalVision’s Franchisor Toolkit. Download the free 32-page toolkit featuring case studies from leading Australian franchisors.
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