NAV­I­GAT­ING FRAN­CHIS­ING DIS­PUTES: A QUICK GUIDE

Inside Franchise Business - - Contents - MICK KEOGH Aus­tralian Com­pe­ti­tion and Con­sumer Com­mis­sion

A step-by-step guide to re­solv­ing dis­agree­ments be­tween a fran­chisee and fran­chisor.

A step-by-step guide to re­solv­ing dis­agree­ments be­tween a

fran­chisee and fran­chisor.

Dis­agree­ments be­tween a fran­chisee and fran­chisor are never a wel­come de­vel­op­ment; they can be a dis­trac­tion for both par­ties, who each have busi­nesses to run.

Where is­sues do arise, a dis­pute can some­times fol­low. In cases like this, know­ing what steps you can take to re­solve the is­sue is very im­por­tant, and can save both par­ties time and money.

FIRST STEPS FOR DIS­AGREE­MENTS

When it comes to dis­agree­ments and dis­putes the old say­ing holds true: preven­tion is bet­ter than cure. Reg­u­lar com­mu­ni­ca­tion be­tween fran­chisors and fran­chisees pro­vides the op­por­tu­nity to raise is­sues be­fore they be­come ma­jor con­cerns. If you have an es­tab­lished re­la­tion­ship with your fran­chisor or their staff, it will be much eas­ier to raise is­sues with them and they will be much more likely to re­spond in a way that suits both par­ties. You might find your is­sue is some­thing that can be eas­ily fixed, and you will not know un­til you try.

If you’ve tried this and the prob­lem still isn’t fixed, the next step is to look at your fran­chise agree­ment to un­der­stand the for­mal dis­pute res­o­lu­tion process for your fran­chise sys­tem. This should set out what both par­ties are re­quired to do if there is a dis­agree­ment.

If you’ve read your agree­ment but can’t find this process, the Fran­chis­ing Code of Con­duct (the Code) out­lines the steps you can take1.

An equally im­por­tant step at an early stage is to make writ­ten notes, in­clud­ing any de­tails of rel­e­vant tele­phone calls or other com­mu­ni­ca­tions, and to make sure you re­tain copies of any doc­u­ments that are likely to be im­por­tant.

WHAT HAP­PENS IF THE PROB­LEM CAN’T

BE FIXED?

If the two par­ties can­not re­solve the dis­pute in­for­mally, then me­di­a­tion is the pri­mary way that fran­chisees and fran­chisors should at­tempt to re­solve dis­agree­ments un­der the Code.

Key steps for deal­ing with a dis­agree­ment un­der the Code in­clude:

• Pro­vide your fran­chisor with writ­ten de­tails of the prob­lem, the out­come you are seek­ing, and how you think the out­come can be met.

• Try to agree with your fran­chisor about how to re­solve the dis­pute.

• If you can­not agree within 21 days, you

An ac­cept­able res­o­lu­tion doesn’t mean that both par­ties al­ways get ev­ery­thing they want. Me­di­a­tion of­ten in­volves ne­go­ti­a­tion and

com­pro­mise.

can re­fer the mat­ter to a me­di­a­tor.

If you can­not agree on a me­di­a­tor, you or the fran­chisor can ask the Of­fice of the Fran­chis­ing Me­di­a­tion Ad­viser (OFMA) to ap­point a me­di­a­tor. If me­di­a­tion is ini­ti­ated, you and your fran­chisor must at­tend me­di­a­tion and try to re­solve the dis­pute. The me­di­a­tor may de­cide the time and place for me­di­a­tion (although it must be con­ducted in Aus­tralia).

There is a gen­eral obli­ga­tion im­posed on both fran­chis­ing par­ties to act in good faith when op­er­at­ing a fran­chise, and this re­quire­ment ap­plies to the en­tire dis­pute res­o­lu­tion process as well.

Although the Code does not de­fine good faith, it does state that the obli­ga­tion is re­flec­tive of com­mon law. Un­der com­mon law, good faith re­quires par­ties to an agree­ment to ex­er­cise their pow­ers rea­son­ably and not ar­bi­trar­ily or for some ir­rel­e­vant pur­pose. Whether bad faith ex­ists depends on all of the sur­round­ing cir­cum­stances.

COM­MON AR­EAS OF DIS­AGREE­MENT OR DIS­PUTE

There are some com­mon is­sues that can cause ten­sion and dis­agree­ments be­tween a fran­chisor and fran­chisee that may lead to dis­putes. These can range from the fran­chisor not pro­vid­ing ad­e­quate sup­port to their fran­chisees – such as train­ing – to a break­down in com­mu­ni­ca­tion, or po­ten­tial breaches of the Code.

Un­der the Code, dis­pute res­o­lu­tion pro­ce­dures must be fol­lowed for ter­mi­na­tion (or at­tempted ter­mi­na­tion) of a fran­chise agree­ment. It's im­por­tant that fran­chisees un­der­stand what their fran­chise agree­ment says about dis­pute res­o­lu­tion.

In spe­cial cir­cum­stances out­lined in the Code, the fran­chisor has a right to ter­mi­nate and isn’t re­quired to fol­low the ter­mi­na­tion pro­ce­dures – if this has been agreed in the fran­chise agree­ment. These spe­cial cir­cum­stances in­clude where a fran­chisee no longer holds a li­cence that is re­quired, has been con­victed of a se­ri­ous of­fence or is fraud­u­lent in the op­er­a­tion of their fran­chised busi­ness.

The dis­pute res­o­lu­tion pro­ce­dure in the Code doesn’t af­fect a party’s right to take legal ac­tion over a fran­chis­ing dis­pute.

TIPS FOR ME­DI­A­TION

The me­di­a­tion process can be daunt­ing. It is worth re­mem­ber­ing that that me­di­a­tors don’t make bind­ing de­ci­sions like judges do. In­stead, me­di­a­tors are there to fa­cil­i­tate a struc­tured dis­cus­sion and work to­wards a re­sult that is ac­cept­able to both par­ties.

An ac­cept­able res­o­lu­tion doesn’t mean that both par­ties al­ways get ev­ery­thing they want. Me­di­a­tion of­ten in­volves ne­go­ti­a­tion and com­pro­mise. But me­di­a­tion does have a num­ber of ben­e­fits over court litigation, in­clud­ing that it is likely to be cheaper and faster.

OFMA of­fers ser­vices prior to the me­di­a­tion to ex­plain how to pre­pare and what to ex­pect in the me­di­a­tion. The Aus­tralian Small Busi­ness Fam­ily En­ter­prise Om­buds­man or Small Busi­ness Commissioners are also able to as­sist with ap­point­ing a me­di­a­tor. Any costs for me­di­a­tion must be shared equally be­tween the fran­chisor and fran­chisee.

Some tips for re­solv­ing dis­putes in­clude: 1. Talk to the other party as a first step and then for­mally com­mu­ni­cate the prob­lem. Record any res­o­lu­tion in writ­ing.

2. Be well pre­pared when en­ter­ing

me­di­a­tion. This in­cludes hav­ing all the nec­es­sary ev­i­dence and records to sub­stan­ti­ate any claims.

3. Un­der­stand any obli­ga­tions you have when un­der­tak­ing me­di­a­tion, such as any con­fi­den­tial­ity obli­ga­tions that ap­ply dur­ing or af­ter the process.

4. Both par­ties must ap­proach the res­o­lu­tion in a rec­on­cil­ia­tory man­ner (e.g. at­tend­ing and par­tic­i­pat­ing in meet­ings at rea­son­able times) and en­sure they do not take any ac­tion that would dam­age the rep­u­ta­tion of the fran­chise sys­tem (e.g. pro­vid­ing in­fe­rior goods or ser­vices).

5. Keep an open mind and be will­ing to make ad­just­ments that can help achieve a timely so­lu­tion. Re­mem­ber that an on­go­ing dis­pute can be costly, time­con­sum­ing and dis­rup­tive to busi­ness.

WHAT ELSE CAN I DO?

The ACCC has a range of on­line re­sources and guides in­clud­ing “The fran­chisee man­ual” which con­tains more in­for­ma­tion about dis­pute res­o­lu­tion. While we don’t pro­vide dis­pute res­o­lu­tion ser­vices or re­solve in­di­vid­ual dis­putes, if you are con­cerned that a busi­ness is not com­ply­ing with the Code or the Com­pe­ti­tion and Con­sumer Act, you can con­tact the ACCC.

While it is not pos­si­ble for the ACCC to pur­sue all mat­ters re­ported to it, pri­or­ity is given to those that have broad im­pact in terms of per­sons harmed, com­merce af­fected or con­duct that sug­gests prob­lems across a sys­tem.

We also en­cour­age you to sign up to our Fran­chis­ing In­for­ma­tion Net­work to keep up with the lat­est news and events rel­e­vant to the small busi­ness and fran­chis­ing sec­tors.

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