Just as in any busi­ness, fran­chises can be sub­ject to dis­putes and dis­agree­ments, but there are clearly de­fined path­ways to reach an an­swer.

Inside Franchise Business - - Contents - TAMRA SEATON

Fol­low the clearly de­fined path­ways to set­tling dis­agree­ments.

Dis­putes and dis­agree­ments are all part and par­cel of fran­chis­ing. The lat­est sur­vey from Grif­fith Univer­sity’s Cen­tre for Fran­chis­ing Ex­cel­lence shows that a quar­ter of fran­chisors have been in­volved in a dis­pute over the past 12 months with a me­dian of two of their fran­chisees.

These dis­putes in­volved en­gag­ing an ex­ter­nal ad­vi­sor, how­ever many more dis­putes and dis­agree­ments likely did not in­volve en­gag­ing a third party.

How should those in the fran­chise in­dus­try man­age dis­agree­ments and avoid dis­putes?

1. Com­mu­ni­ca­tion

As is the case with any re­la­tion­ship, com­mu­ni­ca­tion is key. In fran­chis­ing re­la­tion­ships, it is crit­i­cal that fran­chisors and fran­chisees com­mu­ni­cate ef­fec­tively with each other to en­sure dis­agree­ments and dis­putes ei­ther don’t hap­pen or are re­solved quickly.

Reg­u­lar con­tact from all lev­els of fran­chisor man­age­ment en­sures the lines of com­mu­ni­ca­tion are open be­tween the par­ties and that any is­sues can be dis­cussed and ad­dressed at the ear­li­est op­por­tu­nity. This should hap­pen through­out the term of the fran­chise.

Com­mu­ni­ca­tion be­fore the fran­chise starts is equally im­por­tant. A fran­chisor must en­sure that it clearly com­mu­ni­cates the fran­chise op­por­tu­nity to a

prospec­tive fran­chisee and not make mis­lead­ing state­ments. Like­wise, prospec­tive fran­chisees must be truth­ful in their fran­chise ap­pli­ca­tions so the fran­chisor can prop­erly as­sess their suit­abil­ity for the fran­chise.

Fran­chisors should be ac­ces­si­ble and re­spond to fran­chisees’ re­quests promptly and pro­fes­sion­ally. Fran­chisees should sim­i­larly re­spond to fran­chisors’ re­quests. All com­mu­ni­ca­tions by all par­ties should be re­spect­ful and cour­te­ous.

Wher­ever pos­si­ble, fran­chisors should be col­lab­o­ra­tive and seek in­put from fran­chisees about pro­posed changes or other ac­tions that could im­pact their busi­ness. Fran­chisors should en­sure they give fran­chisees enough no­tice of pro­posed changes or events (es­pe­cially if costs are in­volved) and also pro­vide a sound busi­ness case in sup­port of the pro­posed change or event.

Com­mu­ni­ca­tion among fran­chisees can also help man­age dis­agree­ments and re­solve dis­putes. For ex­am­ple, a fran­chisee may be able to re­solve their is­sue by seek­ing ad­vice from other fran­chisees (or their fran­chisee ad­vi­sory coun­cil, if there is one).

2. Pro­fes­sional ad­vice

Of­ten dis­agree­ments and dis­putes can be avoided or re­solved if the par­ties seek pro­fes­sional ad­vice from ex­ter­nal ad­vi­sors. For ex­am­ple, if there is a dis­agree­ment or dis­pute about the in­ter­pre­ta­tion of a clause of the fran­chise agree­ment, a lawyer can of­ten quickly re­solve the dis­pute by clar­i­fy­ing the cor­rect in­ter­pre­ta­tion of the clause. Lawyers can also rep­re­sent par­ties in a dis­pute by cor­re­spond­ing with the other party.

Fran­chisees should also ob­tain pro­fes­sional ad­vice from ex­pe­ri­enced le­gal, ac­count­ing and busi­ness ad­vi­sors be­fore en­ter­ing into a fran­chise agree­ment, to en­sure they fully un­der­stand all the rights and obli­ga­tions un­der the fran­chise agree­ment and what to ex­pect in re­gard to run­ning a fran­chise.

The 2008 Fed­eral Gov­ern­ment Fran­chis­ing In­quiry noted that con­flicts in fran­chis­ing are of­ten caused by fran­chisees’ ex­pec­ta­tions be­ing mis­matched. That is, if a fran­chisee has not sought pro­fes­sional ad­vice be­fore en­ter­ing into a fran­chise agree­ment, there is a gap be­tween what that fran­chisee ex­pects own­ing a fran­chise to be and the re­al­ity. This can of­ten lead to a dis­pute be­tween the fran­chisor and fran­chisee.

3. Re­search and due dili­gence

Fran­chisees can also find their ex­pec­ta­tions about a fran­chise are mis­matched if they have not done ad­e­quate re­search

If fran­chisors and fran­chisees col­lab­o­rate to en­sure they are both com­ply­ing with their re­spec­tive obli­ga­tions, the num­ber of dis­putes will be sig­nif­i­cantly re­duced.

and due dili­gence be­fore ac­quir­ing a fran­chise.

As well as ob­tain­ing pro­fes­sional ad­vice from le­gal, ac­count­ing and busi­ness ad­vi­sors, prospec­tive fran­chisees should also en­sure they do their own re­search and due dili­gence. This in­cludes (but is not lim­ited to) care­fully read­ing the fran­chisor’s dis­clo­sure doc­u­ment and con­tact­ing cur­rent and for­mer fran­chisees to ask them about their ex­pe­ri­ences with their fran­chises. It also in­cludes care­fully con­sid­er­ing any pro­posed site and/or ter­ri­tory for the busi­ness and in­de­pen­dently as­sess­ing whether it is suit­able and/or ad­e­quate for the busi­ness. Un­der­stand­ing the fi­nan­cial model for the busi­ness is also crit­i­cal.

Fran­chisors must also en­sure the prospec­tive fran­chisee has the req­ui­site skills and at­tributes es­sen­tial for the fran­chise.

Re­search is also needed in re­spect of any dis­agree­ment or dis­pute that arises dur­ing a fran­chise re­la­tion­ship. That is, both par­ties should en­sure they have re­searched their po­si­tion and are sure their view is ob­jec­tively fair and rea­son­able.

4. Com­pli­ance

Many dis­agree­ments and dis­putes arise be­cause par­ties are not com­ply­ing with their obli­ga­tions. This ap­plies to obli­ga­tions in the fran­chise agree­ment and/or le­gal obli­ga­tions.

Grif­fith Univer­sity’s Cen­tre for Fran­chis­ing Ex­cel­lence lat­est sur­vey quotes fran­chisors as say­ing that 63 per cent of dis­putes are as­so­ci­ated with sys­tem com­pli­ance is­sues.

Dis­putes also of­ten arise be­cause fran­chisors have not com­plied with their obli­ga­tions and/or en­gaged in un­law­ful con­duct such as mis­lead­ing, de­cep­tive or un­con­scionable con­duct.

Dis­agree­ments and dis­putes can be avoided by par­ties com­ply­ing with their obli­ga­tions. In the case of fran­chisees, this means fol­low­ing the sys­tem and seek­ing ad­vice and help from the fran­chisor if they think there is a rea­son not to com­ply.

In the case of fran­chisors, this means pro­vid­ing a sys­tem that en­ables fran­chisees to run a prof­itable busi­ness and sup­port­ing their fran­chisees to do so. If fran­chisors and fran­chisees col­lab­o­rate to en­sure they are both com­ply­ing with their re­spec­tive obli­ga­tions, the num­ber of dis­putes will be sig­nif­i­cantly re­duced.

5. The code’s steps for dis­pute res­o­lu­tion

The Fran­chis­ing Code of Con­duct re­quires that fran­chise agree­ments in­clude a dis­pute res­o­lu­tion pro­ce­dure that com­plies with the code.

The first step in the dis­pute res­o­lu­tion pro­ce­dure spec­i­fied in the code is that the com­plainant must ad­vise the other party in writ­ing: the na­ture of the dis­pute; what out­come the com­plainant wants; and what ac­tion the com­plainant thinks will re­solve the dis­pute

This is of­ten re­ferred to as a no­tice of dis­pute.

The next step is that the par­ties must then try to agree on how to re­solve the dis­pute. If the par­ties can­not agree within three weeks, the next step is that ei­ther party may re­fer the mat­ter to a me­di­a­tor for me­di­a­tion.

At the me­di­a­tion, the par­ties must try to re­solve the dis­pute. A party will be in breach if they at­tend me­di­a­tion but do not try to con­trib­ute an­swers.

Tamra is a busi­ness and com­mer­cial lawyer who spe­cialises in fran­chis­ing, com­pe­ti­tion and con­sumer and in­tel­lec­tual prop­erty law.

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