If a franchisee cannot settle a dispute with his or her franchisor by dialogue and negotiation, the first thing that they should do is to refer to the franchise agreement and see if there is a ‘dispute resolution’ clause. Most franchise agreements contain one. This will almost certainly state that in the event of a dispute the parties should try to resolve the problem by negotiation and, failing that, engage in mediation. Only if that fails should litigation be commenced.
For many reasons, this is an excellent clause for the franchisee, and it is sensible to use it to try to avoid litigation. It is likely that the franchisor has greater financial resources, and as mediation is much less expensive than litigation, it will reduce the imbalance. The franchisor will also have resources such as staff members who can deal with the heavy workload that a court case demands. As mediation is a simple process that requires less preparation, its use will also level up the playing field.
The cost obstacle can be partly overcome by agreeing to a no-win-no-fee arrangement with a solicitor, but these are now less commonly available. The time commitment is a different story. Litigation is very time-consuming, and it can take months and sometimes more than a year to get a case decided in court. A franchisee will most probably have to juggle litigation with work commitments and family life. The fact that mediation is easy to organise and usually takes a maximum of one day to complete will greatly assist both parties.
The mediator’s role is to remain entirely neutral while assisting the parties to reach a negotiated settlement, but that does not mean that the result will always be a compromise. If one party has an irrefutably strong case, the mediator’s involvement may assist the other party to accept that they should settle the dispute, thus saving them the very considerable cost of losing a prolonged legal action and the possibility of having to pay the other party’s legal expenses as well as their own.
However, in most cases, it isn’t as clear-cut as that, and both parties have some valid arguments.
The mediator’s job is to find a solution that provides both parties with a better outcome than they would obtain in court. This is often achieved by helping them to consider wider issues and implications. Ideally, the mediator will be able to identify and suggest a solution that they hadn’t previously considered.
Another important reason for both parties to opt for mediation is that it is confidential. For a franchisee, this may not appear to be an important factor, but strategically, it is significant. A franchisor will always have to consider how the other franchisees will react to the outcome. In a private, mediated settlement, a franchisor will be more likely to agree to concessions or pay compensation to get rid of the problem. This would be highly unlikely if the decision was to be made public.
Unlike most commercial contracts, franchise agreements are intentionally biased in favour of the franchisor. This is because the franchisor must be able to control the network of franchisees in order to protect the brand and maintain standards. In a mediation, this imbalance of power is reduced because the mediator acts neutrally to draw out the respective strengths and weaknesses of the opposing arguments to produce a negotiated settlement.
There are no disadvantages for either party in using mediation, except the possibility of it not being successful; in which case, litigation remains available. As mediation is confidential, nothing from the proceedings can be used in a subsequent court case. However, success rates are typically above 80%.
