The franchising agreements always mutually benefit both the franchisor and franchisee. The franchising companies as well as the individual owners get the profits equally upon satisfaction of both the parties with a particular arrangement. But generally this is not the case and there is disagreement between the parties.

Whenever the interests of franchisee and the franchisors clash, the matter aggravates fast. A franchisee that is unhappy with the arrangement has the potential to damage the appeal of franchising company. The franchising company has better recourse and legal resources than franchisee and therefore has an upper hand in many of the cases.

Arbitration and Mediation

Arbitration and mediation are the fastest modes of resolving the disputes of franchisee and franchisor. In most of the cases franchisor would desire to handle the disputes as peacefully and as quick as possible as this will not damage his reputation in front of the investors. But the only problem with the arbitration proceedings and mediation is that they are like a double-edged knife for the franchisors and therefore makes the matter risky.

In most of the cases the Arbitration and mediation proceedings benefit more to the franchisees than the franchisors. In case, if the franchisor feels that arbitration or mediation is going to favor the franchising company, they are more likely to press for arbitration or mediation. In case, if they feel negative about their matter and feel that their case is weak, then they go for the litigation option.

The Arbitration and the Mediation Clause

Many franchisers might include in their franchising agreement a clause that would require that in case if any dispute arises between franchisee and franchisor, the same has to be first brought in for arbitration and mediation. Sometimes, the franchising agreement might also stipulate that the arbitration and mediation clause be the last form of recourse for the complaining and any form of final arbitration shall be valid and binding on both franchisee and franchisor. This thing will surely eliminate the legal recourse and as I mentioned earlier that the litigation recourse benefits the franchisor and therefore such clauses are extremely rare in the franchise agreements.

It is a general tendency of the franchisors to keep all the options open and keeping flexibility so that they will benefit from the mediation and the arbitration when they feel that this arbitration recourse is beneficial to them and might force the franchisee for the litigation option where the arbitration and mediation is working against the franchisor. This kind of flexibility permits the franchising company to have an edge over the franchisee disputes and this will normally work against the franchisees. Although, this means limited scope on part of franchisee to have disputes with franchisor, it’s pertinent that the franchisees do understand their status when they are putting their complaints against the franchising organizations so as to get away from the costly disputes before getting initiated.

Litigation

What ever the outcome might be, whether favorable or unfavorable, the litigation is likely to damage the reputation for the franchising organization and the matter will become very public. This litigation will also be there in the document of financial disclosure and the same might strongly influence the option of the investors.

Litigation might potentially damage the reputation, but still it is favorably tilted towards the franchise organization. The financial resources are also greater in the case of franchisor and therefore they can easily have access to a better legal counsel. In most of the cases, the franchisees also drop the matter when they have to bear the costs of litigation with the franchising company in the court of law.

This article by Austin Commercial Litigation Firm, The Butler Firm.