Inside Franchise Business - - Contents - STEPHEN GILES

What to do if you find your­self head-to­head with the fran­chisor.

Un­der­stand your op­tions if you find your­self head­ing for

a se­ri­ous con­flict with your fran­chisor.

Dif­fer­ences of opin­ion are an every­day fea­ture of fran­chis­ing, as it is nat­u­ral for two in­de­pen­dent busi­ness own­ers to have dif­fer­ing views on some is­sues. While the dis­pute level in fran­chis­ing has been con­sis­tently low - at less than 2 per cent for many years - it is im­por­tant for fran­chisees to know how best to han­dle any dis­agree­ments that arise.

The good news is that since 1998 there has been a highly ef­fec­tive frame­work for dis­pute res­o­lu­tion in fran­chis­ing. The me­di­a­tion-based process, set out in the Fran­chis­ing Code of Con­duct, is un­doubt­edly world’s best prac­tice, and in most cases if thought­fully used will pro­vide the best frame­work for re­solv­ing a dis­pute quickly, ef­fi­ciently and cost-ef­fec­tively.

S tatis­tics f rom t he O ffice o f t he Fran­chise Me­di­a­tion Ad­viser con­sis­tently show a me­di­a­tion suc­cess rate of around 80 per cent un­der its regime.

It is rare to find a fran­chis­ing dis­pute where nei­ther party can achieve their best net out­come us­ing the process. How­ever, they both need to be suf­fi­ciently pre­pared and suf­fi­ciently re­al­is­tic, and act at the ear­li­est op­por­tu­nity.

Here are six tips about fran­chise dis­putes...


The fol­low­ing sug­ges­tions may help pre­vent a dis­agree­ment or prob­lem from es­ca­lat­ing into a ma­jor dis­pute, or may help en­sure a dis­pute is re­solved as ef­fi­ciently and ef­fec­tively as pos­si­ble:

• Act im­me­di­ately - do not wait for things

to im­prove

• Ask for a meet­ing with the fran­chisor rep­re­sen­ta­tives specif­i­cally to dis­cuss your con­cerns. If nec­es­sary, es­ca­late the re­quest to a more se­nior em­ployee or the fran­chisor CEO

• Be calm, po­lite and fac­tual. You may need to bite your tongue, but con­sider the de­sired out­come. Hurl­ing abuse or mak­ing ac­cu­sa­tions or threats is un­likely to achieve your out­come, even if there is a ba­sis for do­ing so

• Speak to your Fran­chise Ad­vi­sory Coun­cil rep­re­sen­ta­tives, if there is an FAC, or other fran­chisees. They may take up your is­sue for you, or add weight to your claims. They may also be good for a re­al­ity check

• Be hon­est with your­self. Eval­u­ate the root causes of the dis­pute, not the symptoms. Ide­ally a fran­chisee should ob­tain in­de­pen­dent in­put into this eval­u­a­tion. Some­times a dis­pute is re­ally a symp­tom caused by an­other fact, such as re­gret about buy­ing the fran­chise in the first place.


In broad terms, you have five op­tions when in­volved in a se­ri­ous dis­pute. Some of these op­tions can be un­der­taken con­cur­rently:

1. Ac­cept the re­al­ity and move on. Peo­ple of­ten come back to this op­tion af­ter work­ing through the other op­tions. It is there­fore im­por­tant not to burn this bridge too early.

2. Ac­cept the re­al­ity and exit. The Fran­chis­ing Code of Con­duct in essence pro­vides fran­chisees with a statu­tory right to trans­fer the fran­chise, and this will of­ten be the best op­tion, even for fran­chisees who may feel they have a le­git­i­mate le­gal claim against the fran­chisor.

3. Ac­ti­vate the code dis­pute res­o­lu­tion


4. In­volve the ACCC.

5. Take le­gal ac­tion.


It is vi­tal to ob­tain in­de­pen­dent in­put to your de­ci­sion (re­mem­ber the say­ing, if you act for your­self you have a fool for a client). In­de­pen­dent in­put can come from sev­eral sources:

• Other fran­chisees – if they have the same prob­lem, they may also be part of a so­lu­tion. How­ever, ad­vice needs

to come from an ex­pe­ri­enced and ob­jec­tive fran­chisee, not just some­one with a sym­pa­thetic ear or their own axe to grind.

• A friend – but they need to be

ex­pe­ri­enced and ob­jec­tive.

• A lawyer – choose one ex­pe­ri­enced in fran­chis­ing who will bring ex­per­tise and ob­jec­tiv­ity. Be wary of one with­out gen­uine ex­pe­ri­ence in fran­chis­ing, or one who seems in­tent on lit­i­ga­tion or an ad­ver­sar­ial ap­proach.


Rarely does any­one “win” in a dis­pute, and rarely does any­one achieve an ideal out­come. It is par­tic­u­larly im­por­tant for a fran­chisee to un­der­stand the po­ten­tial ad­verse con­se­quences and not be blinded by a view that they are “in the right” or have a good le­gal case.

The con­se­quences of a dis­pute for a fran­chisee are not just fi­nan­cial. Dis­putes place im­mense per­sonal stress on a fran­chisee and their fam­ily, are a sub­stan­tial dis­trac­tion to run­ning the busi­ness and can cause ad­verse re­ac­tions from third par­ties such as fi­nanciers and land­lords. Most cases take a cou­ple of years to come to court, and it is easy to in­cur costs well in ex­cess of $100,000, even if you “win” the case. If you lose a court case, you will typ­i­cally have to pay the le­gal costs of the other party as well.

The best so­lu­tion to a dis­pute will rarely be ideal, so ad­just your ex­pec­ta­tions early. Fo­cus on an out­come you can live with, not your best case.


A fran­chised busi­ness has far greater value as a go­ing con­cern than if it stops trad­ing. If the doors close, not only does good­will po­ten­tially evap­o­rate, but fixed as­sets and stock can lose sig­nif­i­cant value. The more value that is pre­served in a dis­pute, the more there is to al­lo­cate be­tween the par­ties. Hang in there - while it is of­ten tempt­ing to just walk away or close the doors, per­se­ver­ance leaves more op­tions avail­able.


I have of­ten seen par­ties pro­ceed to me­di­a­tion too early, with­out proper thought or in the wrong frame of mind to achieve the best out­come. Some­times an in­ex­pe­ri­enced lawyer ex­ac­er­bates the prob­lem by ei­ther fo­cussing too much on the le­gal rights and wrongs, or see­ing the or­gan­i­sa­tion of me­di­a­tion as an out­come of it­self.

En­sure dis­pute no­tices have enough de­tail about the true na­ture of the dis­pute, and list op­tions that could re­solve the sit­u­a­tion. The code also re­quires that the par­ties try to agree on how best to reach a res­o­lu­tion.

Tak­ing ac­count of these tips should help en­sure the right mind­set, and alert fran­chisees to steps they can take to in­crease their chances of se­cur­ing an ac­cept­able res­o­lu­tion to a dis­pute.

While it is of­ten tempt­ing to just walk

away or close the doors, per­se­ver­ance leaves more op­tions


Part­ner, Nor­ton Rose Ful­bright

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