Franchise agreements can lead to beneficial and profitable relationships for the parties on both sides of those agreements. However, there are cases when a franchise relationship can lead to disagreements between the two parties. Disagreements do not have to become contentious lawsuits. They can be avoided in the first place or resolved before they become litigious. Here are five ways to avoid franchise disputes.
Choose Business Partners Wisely
When you sign a franchise agreement, for better or worse, you become partners with the other person or company. You are both tied to each other. As a franchisee, you need the franchisor for their marketing, brand reputation, and support. If the franchisor does not follow through on their end of the deal, you have made an investment that will not be recouped.
As a franchisor, you need franchisees who are reliable and will represent your business well. Every single franchise reflects on your overall business brand. Some may be under-capitalized or may try to cut corners to save money.
Both parties to the deal should know exactly who they are partnering with in a business partnership. Each side needs to do its due diligence to look for possible red flags in the other. Sometimes, the best deal you can make is no deal at all. The failure to perform adequate due diligence can cost you well into the future.
Franchisors should be careful about growing at any costs because doing so might mean they take on an unreliable franchisee who may not live up to the terms of the deal. Franchisees need to know they can trust their money and possibly their financial future to the franchisor.
Carefully Read the Franchise Agreement
The franchise agreement is the main document that controls the relationship between the two parties. In the event a dispute is litigated, it is the document a court will look to first as the contract between the franchisor and franchisee. You will almost always be bound by the terms of the agreement you signed.
Regardless of whether you are the franchisor or franchisee, you should review the franchise agreement in detail. As the franchisor, you should carefully craft language that allows you to maintain some control over the franchisee. Without it, the franchisee may have an unfettered ability to do what they want, potentially damaging your franchise’s brand.
Similarly, franchisees should review the agreement language to make sure it is not a completely one-sided arrangement that will leave them subject to the franchisor’s total control under unfair terms.
One aspect that should be incorporated into a franchise agreement is what happens in the event of a dispute. Some franchisors want the right to arbitrate in what they think might be a friendly forum. At the same time, franchisees want a fair dispute resolution mechanism. In order to avoid litigation, the franchise agreement should allow for, and possibly require, mediation when there is a dispute.
Keep Lines of Communication Open
Many franchise disputes result from poor communication. There may be a legitimate reason for the disagreement, but the inability for the two sides to talk could cause a simple misunderstanding to mushroom into expensive litigation.
Both sides should make attempts to resolve an issue without resorting to a lawsuit. From the franchisor’s standpoint, they do not want to acquire a reputation as being litigious because it could scare off potential franchisees and negatively affect the value of their brand. Poor relationships with franchisees cause sales to stagnate and reduce motivation to sell products.
For the franchisee, litigation is expensive. The franchisor likely has more money and a higher budget for legal fees. Many franchisees are small businesses operating on limited budgets.
Formal mediation or informal exchange of viewpoints can help facilitate communication. A party should only resort to litigation after all other possible means of resolving a dispute have failed. An experienced Houston business law attorney can communicate with the other party and/or its legal counsel on your behalf.
Enforce Your Legal Rights Under the Franchise Agreement
In some ways, being more aggressive about enforcing your legal rights may actually prevent litigation. Being quick to point something out and take action when your legal rights are not being fully respected can resolve problems when they are smaller. Waiting to address these issues can cause problems to grow much larger, making them more difficult to resolve.
You should know your franchise agreement to the letter. Do not hesitate to call attention to what you think may be a violation of your rights under the agreement. You do not necessarily need to threaten litigation at first, but you can let the other party know you are aware of your rights and you are closely monitoring the situation.
Get Legal Help
While it might not seem like it, consulting with an experienced attorney can actually help move you further away from the possibility of litigation. A business attorney can review your circumstances and give you advice on how to reduce tensions with the other party in order to resolve a dispute. A Houston franchise lawyer can advise you on your rights and obligations under the franchise agreement. In some cases, when the other party knows you have an experienced attorney, they become more litigation-averse and are more willing to resolve disputes outside of court.
A DIY approach to franchising and franchise issues can cause smaller issues to spiral out of control. An experienced business attorney is a more objective third party who can give you a fair read on potential courses of action and realistic advice on how disputes may play out in court. If you cannot resolve the disagreement, your attorney would shepherd your dispute through the legal system while attempting to resolve it for you as soon as possible and as favorably as possible.
To schedule a consultation, contact us today. The business litigation attorneys at Feldman & Feldman can work for you to protect your best interests.