Common disputes between franchisee and franchisor and how to solve them

Despite the fact that the franchise relationship is essentially a business partnership, it can sometimes feel more like a marriage.

Despite the fact that the franchise relationship is essentially a business partnership, it can sometimes feel more like a marriage.

The pairing has a common interest at its heart – the success of the franchise as a whole – but the franchisee and franchisor are performing separate roles with different personal goals.  As a result, emotions can often get a little frayed - or in the worst case scenario, the agreement can come to an end.  This can occur for a variety of reasons such as:

The franchisor or franchisee breaching the agreement

The fixed term of the agreement expires

The franchisor becomes insolvent 

But, if you're thinking about buying a franchise, don't let this put you off! We spoke to some industry experts to discover how to maintain equilibrium in the franchise relationship:

Trust issues

Nigel Toplis, Managing Director of the Bardon Group, the UK’s leading multi-brand franchisors, notes that many disputes are down to issues with trust,

‘I’ve always felt that the best franchisor/franchisee relationship is that where the franchise agreement is never seen from the point of renewal.’

He claims that a good relationship is built on a foundation of mutual respect and the devolvement of responsibilities.

‘The franchisee must trust the franchisor to provide a good business system, on-going support and a range of business tools. The franchisor must trust the franchisee to work diligently, give 100% to the business and to follow the system.’

Trust issues usually originate from ambiguous roles within the relationship,

‘Each party must recognise their part of the bargain.’says Toplis.

Make sure that the roles are clearly defined (or redefine them) and trust that each of you can play your part well. Don’t try to step on each other’s patch because you think that you could make a better job of it.

‘It is absolutely right for the franchisee to give their opinion on how the franchise is progressing – to supply ideas and to challenge the franchisor. However, it is not for franchisees to feel that they should be running the franchise. Similarly, I have made it a point that I never tell any of my franchisees how to run their businesses – my job and the job of all franchisors is to advise, guide and support and lay out for the franchisee the best practice route to running the business.’

The blame game

Things can get very sensitive when a franchise isn’t doing well and there is a difference of opinion about the cause,

‘Business performance issues are much more complex to resolve with typically each party blaming the other for the underperformance of a particular franchise’ says Mark Witter, franchisor of the rapidly growing Window to the Womb network.

An allegation from the franchisee may be that the franchisor had misrepresented the business prospects when signing the agreement. The franchisor, on the other hand, may believe that the negative business performance is down to the franchisee not adhering to strategies and guidelines set in place.

Witter believes that this can be best dealt with if the relationship gets off to a good start at the beginning, with clear lines in place: ‘A franchisor who ensures that roles are clearly understood both at the outset and ongoing will be in a stronger position to work with a franchisee and remedy underperformance.’

Winning custom

‘One of the most common disputes that occurs, in my opinion, is the question about whose responsibility it is to get customers for a franchisee’, says Stuart White, Director of Sanondaf International Franchising Ltd.

He sees being a franchise owner as the same as being a business owner, believing that the success or failure of their franchise will ultimately be down to the franchisee, although a good franchisor will give them the necessary tools to do so.

‘Some of them follow the process laid out in training and find some early success but others will try something once or twice and then give up.

 Every business owner should understand that success requires hard work, persistency and relentless motivation until something starts to work and not be put off because it doesn’t work first time,’ says White.

‘A franchise is a long-term commitment and shouldn’t be judged after the first 3 months.’

Clear communication, he says, is the way to solve such disputes.

Franchisee rivalry

Discontentment within the franchise network can occur simply through a feeling of inequality among the different franchisees.

Mark Witter has a simple solution to this – to maintain ‘complete transparency across the organisation by treating all franchisees as true business partners’.

Although many may be sceptical of such an approach, Witter feels it is essential to the success of his franchise network,

‘In our business, we resolved to remove any areas of potential future resentment or dispute when we created our business model. As a result we have, amongst other things, introduced fixed monthly fees – everyone pays the same removing the very common source of complaint: 'I pay more than ...., they pay less than me' – and we have also created and nurtured a completely open culture where all of our franchisees willingly cooperate with each other.

This is surely one of the key benefits of joining a franchise but one that some franchised organisations fail to take full advantage of.’

To underline his egalitarian approach, Witter insists on being called a ‘franchise partner’ rather than taking on a title that suggests a hierarchy.

Territorialism

Many potential franchisees will be told that when they become part of the franchise, they will receive an ‘exclusive territory’. This, however, is unlikely to stop disputes from arising between franchisees who encroach upon other territories from time to time. This is often due to the belief that one was given a better territory than the other.

Sometimes franchisees may not have ‘exclusive’ territories, so a franchisor may place another franchise in an area close by which can lead to friction.

David Kaufmann, expert in US franchise law, says,

‘The solution to franchisee unhappiness over claimed franchisor "encroachment" is for the franchisee to truly understand – with the assistance of competent franchise counsel – the nature and extent of the territorial protections, if any.’

‘These provisions are reviewed three times by a prospective franchisee – first in the UFOC, second in the specimen franchise agreement appended to the UFOC, and third in the actual franchise agreement executed by the parties’, he told MSA Worldwide.

‘All too often, franchisees later complain of encroachment and suggest that they really did not pay attention to the subject franchise agreement's territorial provisions before signing the contract.’

A successful franchise network requires excellent lines of communication and clear boundaries. Remember that if both parties are willing to identify their issues with sensitivity, they can then work towards a solution. No one can be right all of the time: if both franchisor and franchisee are willing to listen to each other and compromise, they are far more likely have a long and happy franchise family.

 


Rose Hill

About the author

Rose Hill is an in-house journalist and writes for all titles in the Dynamis stable including BusinessesForSale.com, FranchiseSales.com and PropertySales.com as well as other industry publications.