Business Management Case Study; Arbitration, Mediation or Litigation in Franchising Agreements

Business Management Case Study; Arbitration, Mediation or Litigation in Franchising Agreements

Executive management franchising teams in franchising companies must decide how they wish to handle disputes in the franchising agreement. More often than not clauses are put into the franchising agreements, which stipulate how disputes between franchise stores and franchisees will be handle.

Generally the parties agree in advance to handle such disputes in a certain way. One of the most common ways, which saves both the Franchisor and the franchisee from extensive legal fees is to use an arbitration clause.

Generally these arbitration clauses serve the franchisee as well because litigation is so very costly and generally when a franchisee has a dispute it is because the business is not succeeding and therefore they will have little if any money to fight the Franchisor in court. The Franchisor also benefits and it prevents excessive lawsuit litigation and very high awards from kangaroo courts with problematic juries.

Am I saying that arbitrator is usually rule in favor of franchisees? Yes, more often then not, I have found this to be the case. In the end however, it saves time an money USUALLY for both parties although it appears some franchise companies have indeed found an exception.

Do I recommend arbitration clauses in franchising agreements? Actually I do and we always had them in our franchising agreements, ask your attorney. But mediation and litigation are also options to binding arbitration clauses. Please consider this in 2006.