DEALING WITH DISPUTES
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...
TIP 1: AVOID A DISPUTE IF POSSIBLE
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
• 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.
TIP 2: UNDERSTAND YOUR OPTIONS
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.
TIP 3: TAKE A REALITY CHECK
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.
TIP 4: UNDERSTAND THE CONSEQUENCES
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.
TIP 5: PRESERVE THE BUSINESS’ VALUE
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.
TIP 6: FOLLOW THE CODE PROCESS
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