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As a franchisor, you should try to avoid disputes wherever possible. They can be costly and time-consuming for your franchise. However, disputes occasionally happen, and you must deal with them accordingly. Notably, how you do so may change according to your membership of the Franchise Association of New Zealand (FANZ). This article will explain how you should manage franchise disputes as a franchisor.

Disputes Within Your Franchise

The relationship between you and your franchisees is critical and one of the crucial building blocks of your franchise. Ideally, you want to avoid problems with your franchisees that evolve into disputes. Ensure that you train your franchisees in your systems appropriately and keep up an open line of communication. Listen to their grievances, and maintain good faith efforts to address concerns where appropriate.

However, some disputes may end up being unavoidable. Causes of disputes in franchising can range from trivial matters to major ones, but you need to be mindful to avoid escalation where possible. Some examples of causes for disputes include:

  • franchisees claiming you have not given them enough support;
  • conflicting interpretations of your franchise agreement;
  • claims of misleading or deceptive conduct;
  • lack of compliance with the terms set out in the franchise agreement;
  • unfair franchise agreements;
  • lack of franchise profitability;
  • cost pressures;
  • unrealistic expectations from franchisees;
  • too much franchisor control;
  • poor communication around franchise changes;
  • lack of franchisee consultation;
  • conflicts around franchise locations; and
  • ineffective training.

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Your Franchise Agreement

Your franchise agreement should detail how you and your franchisees can facilitate dispute resolution. For members of FANZ, this would become an issue that relates to the dispute resolution provisions in the Code of Practice. Additionally, as a member, you must include a dispute resolution clause in your franchise agreement.

For franchises that are not a member of FANZ, you follow what your franchise agreement lays out. A dispute resolution clause would be something that you and your franchisees agreed on at the time of signing and outlines specific steps for handling a dispute. Ensure at the time of drafting that both parties are clear on their obligations and understand what you expect each other to do in the event of a dispute. Crucially, you need to mark what is compulsory in this process clearly.

Your dispute resolution clause should set out clear steps for franchisees to air their concerns and begin the dispute resolution process. For instance, you may begin the process with a franchisee making an internal formal written complaint, followed by appropriate discussions. Negotiations should gradually escalate if you cannot resolve the problem through internal and informal communication.

Options Available for Franchise Disputes

The longer and more drawn out the dispute resolution process becomes, the more cost it generates for both parties. Therefore, it is in your interest to solve the matter quickly and simply. How you manage your disputes should reflect this, with an initial discussion regarding the issue being among the first steps. If this does not work, the table below sets out various options for dispute resolution.

Mediation

A face-to-face meeting involves finding a third party to be a mediator. This would generally be the next step you take after initial discussions fail. It is cheaper and quicker than litigation, making it a good alternative. The mediator cannot order you to force a solution, but they can help you negotiate one.

Arbitration

This method is similar and a faster alternative for going to court. In this method, you also find a separate third party, such as a retired judge, senior lawyer, or expert in the subject matter of the dispute. They supervise the dispute and can order certain consequences for both parties. Like with a court case, you will need to provide evidence, and there is the opportunity for cross-examination.

Going to Court

Taking your dispute to court should be a last resort, as this will be the most costly and drawn out. Your case may go to trial, and a judge decides the outcome.

In any of these situations, you should seek legal advice to determine the best path to take.

Dispute Resolution as a Member of FANZ

If your franchise is a member of FANZ, the Code of Ethics and the Code of Practice binds you. There are rules for treating your franchisees, and they can complain if they think you have breached those rules. Therefore, you must follow their procedure for dispute resolution, outlined in their Code of Practice. This process involves both parties to the dispute meeting and negotiating a solution mutually. If this fails, then the code outlines a mediation process. After that, arbitration and the courts are potential options.

Key Takeaways

Ideally, you want to maintain good relations and communication with your franchisees to avoid disputes. However, disputes happen, and your resolution process should focus on de-escalation where possible. Encourage mutual negotiation, and try to avoid costly court processes where possible.

If you need help with managing franchise disputes, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

What is a franchise?

A franchise is a business model that you may use to grow your business. You, as the franchisor, allow other parties, the franchisees, to replicate your business operations to create their own success. In return, you grow your brand and receive various fees or royalties.

What is FANZ?

FANZ stands for the Franchise Association of New Zealand. This organisation offers voluntary membership for franchises in New Zealand. It has certain codes that regulate its members, and they offer useful services and resources.

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

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