At QBM Lawyers, we have professional skills in resolving franchise disputes whether through negotiation, mediation, or litigation.
Franchise disputes can arise in a number of ways, and at the instigation of both the franchisor or the franchisee.
Disputes instigated by franchisor
The franchisor will commonly issue a notice to remedy any perceived breach of the franchise agreement at the commencement of the dispute resolution process. This notice should identify the dispute, the conduct required to rectify it, and provide a time in which it must be resolved.
Franchise agreements are often particularly complicated and might involve ancillary documents such as outlet licence agreements, manuals, software agreements and the like. Often, the franchisor will provide different services through associates such as the leased premises might be provided through a leasing entity, and consumables might be provided through a separate entity. Sometimes franchisors will fail to recognise these distinctions and the breach notice might not have a proper foundation. Careful attention must be given to the transaction documents in order to decide whether the franchise dispute is properly brought.
Common complaints by franchisors to franchisees include:
- The franchisee not paying marketing fees or royalties or other money due under the franchise agreement;
- The franchisee breaching the terms of its outlet licence agreement;
- The franchisee under disclosing revenue;
- The franchisee engaging in business which would tend to compete with the franchised business;
- The franchisee not observing the terms of the franchise agreement and the standards to which it is to perform the franchised business;
- The franchisee underpaying staff (which can result in a liability on the part of the franchisor).
The ultimately remedy of the franchisor if the franchisee does not remedy a breach is to terminate the franchise agreement. That can result in significant loss and claims for damages, including claims for future losses.
Disputes instigated by franchisees
Generally, the franchisee has rights to agitate a franchise dispute under the provisions of the Franchising Code of Conduct. The Code also requires that a dispute notice is given in respect of the franchise dispute. That is similar to the notice to remedy breach discussed above. The parties then have three weeks in which to attempt to resolve the dispute and if it remains unresolved, then either party can request a mediation. In this mediation process, generally a mediator who is skilled in franchise disputes will be appointed and will attempt to bring the parties to a mutually acceptable resolution.
Commonly, the complaints of franchisees tend to concern:
- inadequate marketing or inappropriate use of marketing contributions;
- delays in the franchisor adapting to market conditions;
- challenges in the supply chain or complaints about the products purchased by the franchisee from or at the direction of the franchisor;
- training and support issues;
- representations made by franchisors or their agents prior to the franchisee taking the franchise;
- renovation and make good costs on exiting the franchised system.
Parties to franchise agreements have obligations to act in good faith. This obligation is used mainly by franchisees in complaints against franchisors, however it also applies to the conduct of franchisees.
While mediation and dispute resolution are cost effective ways to proceed, the franchisor and the franchisee each have the entitlement to commence legal action. Generally speaking, the commencement of legal action is a last resort as it is thereafter difficult to maintain a working relationship. That said, in cases where a business is being significantly damaged by the conduct of a party, urgent relief such as obtaining an injunction to restrain further conduct of the nature complained of can be a sensible step to take.
The lawyers at QBM Lawyers are skilled in franchise disputes and their resolution. Our lawyers are familiar with the requirements of the Franchising Code of Conduct in respect of disclosure and the requirements for full and proper updating of material such as the marketing fund reports and updated disclosure documentation.