A franchise agreement describes how the franchisee will operate a franchise location and the obligations of the franchisor and the franchisee. Like any business contract, it is possible that disputes between the signatories to the contract will occur.
In the event of an apparent contract violation, a franchisor and franchisee should find a way to resolve the issue. A number of resolution methods are generally available to handle a franchise dispute.
Use a private settlement
Not all breaches of contract go to court. Sometimes a disagreement is too trivial for legal action or a franchisee only made a minor mistake. Alternatively, both the franchisor and franchisee want to avoid the time and cost of a lawsuit even if the breach is serious. In such cases, the parties can negotiate privately and come up with an agreement to remedy the breach.
Some franchise agreements require that the franchisor and franchisee take their dispute to arbitration. This allows for one or more arbitrators to hear the arguments of both parties and determine a solution. Through arbitration, the parties can resolve the matter privately and less expensively than going to court.
Resolution through a lawsuit
Depending on what the franchise agreement says about resolving a dispute, going to court may only be an option after attempting negotiation or arbitration. Sometimes a lawsuit may be necessary to resolve a serious legal dispute or determine damages even if other resolution methods are available.
Given how common franchise relationships are, a franchisor-franchisee dispute can take many forms. A review of a franchise contract should help a franchisee understand available legal options.