Franchise disputes – tips to minimise the risk

We frequently act in franchising disputes and see the same issues arise again and again.

Many of the issues arise out of communication issues and a difference in expectations as to how much the franchisor will assist in the running and marketing of the business.

Tip 1 – be very clear as to what support and training will be provided

Many disputes involve allegations by the franchisee that they were promised large amounts of support and training and only a minimal amount was provided.

This often leads to a misleading and deceptive conduct claim.

Prior to signing the franchise agreement, it is important to be very precise as to exactly what support and training will be provided.

Tip 2 – be very clear as to what assistance will be provided to build the client base

We frequently are involved in disputes where there is difference in expectation by both parties as to how much the franchisee will be assisted in building the business and what form of assistance will be provided.

Often franchisors complain that the franchisee doesn’t seem to understand that it is their business and their responsibility to build their customer base. Franchisees often tell us that they were promised assistance and marketing (such as a social media campaign) which was never properly delivered.

Once again, these disputes often involve allegations of misleading and deceptive conduct.

Prior to the franchise agreement being signed, it is incredibly important to be very clear and precise as to exactly what marketing will be conducted by the franchisor and what the individual franchise business will need to do.

Tip 3 – ensure that the franchisor keeps updated customer lists

It is a sad reality that many franchisees will learn the business while operating a franchise and then sell their franchise after a few years once they have the experience. In some cases the operator will then decide to open their own business in competition to the franchise.

It is critically important that restraints of trade are drafted into the franchise agreement to prevent this or allow a franchisor to litigate if the term is breached.

In order to minimise losses, it is also important that the franchisor has all customer lists continuously updated. This is so that if a franchisee does sell their business, all customers can quickly and easily be contacted directly rather than relying on the franchisee who has just sold the business to provide them.

If the matter does end up in litigation, having the customer list assists with producing evidence that the new business has contacted or is providing services to the franchise’s customers.

Tip 4 – keep the franchisee engaged and feeling valued

Much of the litigation we see stems from franchisees not feeling valued or supported. Once a franchisee feels this way, they are more likely to complain end up in a dispute with the franchisor.

Many of the complaints could be prevented by:

• setting out in writing each parties’ roles and responsibilities very clearly;
• regular scheduled meetings to discuss the business;
• clear business and marketing plans being prepared with both parties’ input and updated annually; and
• keeping business records updated with the franchisor.

 Conclusion

As always prevention and careful planning at the outset is better than ending up in a costly and protracted dispute. Unfortunately, even with the best planning sometimes disputes will arise.

Madgwicks has a great depth of experience in franchise disputes and can assist with any queries you may have. Do not hesitate to contact Litigation Partner Catherine Ballantyne or Special Counsel Chris Verebes in the Franchising team to discuss your own situation.