The challenge is to manage the disagreement in a manner that enables the ‘marriage’ to survive and flourish, or to minimise the pain for both parties if they decide to part ways.
The Most common cause of conflict between franchisor and franchisees is a divergence of expectations, and the inability to meet expectations.
By balancing expectations, through continuous dialogue, listening and seeking legal advice, countless disagreements can be avoided.
1. Balancing expectations
In their relationship with the franchisor, franchisees seek to grow profitable businesses, while franchisors seek to maximise their financial performance and market coverage in their relationship with franchisees.
To achieve success, the franchisor and franchisee need to understand the goals and expectations of the other party in the relationship.
Whether you are a franchisor or franchisee, ensuring that the franchise brand is protected will yield the best result for all parties.
The franchisor and franchisee should jointly develop clear expectations from the outset about the role of franchisees and how they are to be evaluated, and the support franchisees can expect from the franchisor. By balancing expectations, many conflicts can be avoided.
Related: Dealing With Sales Disputes
2. Continuous dialogue and listening
When a franchisee’s business is under-performing, they are often quick to blame the franchisor. On the other hand, a franchisor may impose extreme fees on franchises or threaten to remove them from the brand.
If a franchisor is willing to listen, and through meaningful dialogue between both parties, they may discover new ways to help the franchisee grow the business or exit the franchise as painlessly as possible.
3. Legal advice
Practical dispute management and substantiated legal advice may prevent escalation of conflicts between a franchisor and franchisee. Attorneys can assist with defining and communicating all relevant parties’ major issues and devising a strategy to achieve desired results with minimal business interruption.
If this is not enough to resolve the dispute, attorneys can turn to dispute resolution through mediation and if necessary, litigation.
Whether it is lack of support from the franchisor or failure to comply with the franchising system, disputes are almost inevitable. So what can you do when a franchising dispute arises?
Disputes between a franchisor and franchisee can often be resolved quickly and constructively if the right approach is adopted.
Some methods of resolving franchising disputes include:
Your franchise agreement should cover the basic terms of engagement, including rights, obligations and limitations, and contain provisions on how to resolve disputes which may arise.
Negotiation and Mediation
The first step of resolving a dispute is for parties to commit to avoiding approaching the courts. The franchise agreement should clearly state that the parties will negotiate, and if necessary appoint an independent third party, such as an expert in the field of the dispute, to mediate the negotiation.
If the negotiation and mediation is unsuccessful, the parties can approach an arbitration body such as the Arbitration Foundation of South Africa. The objective of arbitration is to offer an alternative to resolving disputes in court. However, parties must consider the rules and costs of this route.
National Consumer Commission
As a franchisee is a consumer in terms of the Consumer Protection Act 68 of 2008, it is entitled to lodge a complaint against the franchisor with the National Consumer Commission (NCC). The NCC registers and assesses complaints, investigates alleged misconduct, refers individual complaints to alternate dispute resolution agencies for resolution, and represents consumers in the Consumer Tribunal.
The draft Franchise Industry Code of Conduct (the Code) was published for comments on 29 January 2016. Its purpose is to regulate the relationship between franchisees and franchisors.
The Code will provide for the establishment of a franchise ombud and appointment of an ombudsman. The ombud will create a platform where franchisees and franchisors can resolve disputes by making use of inexpensive alternative dispute resolution processes, thus avoiding costly litigation.
Although the process will be prescribed and structured, the ombudsman will be more of a mediator than an arbitrator, without the power to make binding awards against any of the parties.
He will make recommendations, to broker a consensual settlement between the parties.
The franchise agreement must allow for any party to approach the courts if alternative resolution is unsuccessful or if a matter is considered urgent, such as an application for an urgent interdict. Parties must consider the cost implications of this remedy.