The Franchisee and Franchisor Relationship

When a franchisee butts head with his or her franchisor in court, it is usually the franchise owner who loses. In fact, many claims by franchisees against their franchising organizations never even reach court. This owes to the fact that, most often, franchise owners cannot afford the high costs of litigation and are forced to drop their disputes.
Even though litigation may more often than not favor franchise companies, many would still rather avoid litigation. Franchisors prefer to stay out of court because suits brought against them by their franchises reflect poorly on franchising companies, regardless of the outcome. As such, many would prefer to pursue mediation and arbitration as an alternative to lengthy and public legal battles.

Mediation

Mediation is a non-binding means of resolving conflict between franchisor and franchisee. In order to pursue mediation both franchisor and franchise owner must agree to attempt to settle their dispute by means of a mediators non-binding decision. The mediator, being a neutral third party, then hears the complaints and defenses of both franchisor and franchisee and attempts to make a reach a peaceful and equitable solution.

Mediation allows for a quick and relatively inexpensive means of conflict resolution. However, since the decision of the mediator is non-binding, both parties must actually agree to abide by the decision. If one or both parties is not in agreement with the decision then the issue may move into arbitration or litigation.

Arbitration

Unlike mediation, arbitration is a more formal means of conflict resolution. The decision rendered in arbitration can be either binding or non-binding depending on the agreement of both the franchisee and franchisor prior to arbitration. Arbitration proceedings are similar to court proceedings in their approach, with both franchisor representatives and the franchise owner presenting their cases before the arbitrator or arbitrators.
Like mediation, arbitration generally is a more economical and less time consuming alternative to litigation. If both parties have agreed to hold to the binding resolution of the arbitrator than the need to litigate is eliminated and the conflict can be considered resolved. However, if the arbitration isn't binding and both franchisor and franchisee do not agree to the ruling of the arbitrator, then the dispute may end up in litigation.

Litigation

Both mediation and arbitration are means to peacefully resolve conflict while maintaining the integrity of the business relationship between the franchise owner and franchisor. Litigation, however, most generally constitutes a breach of contract and effectively ends the business relationship. As such, it should be viewed as a last recourse for franchisees who wish to have their dispute resolved while maintaining their franchisee status.

As mentioned above, litigation seldom favors the franchise owner, if for no other reason than the cost of doing battle in court may exceed the owner's means. Furthermore, franchising contracts, being drafted by legal advisors for the franchising organization, most generally work in favor of the franchising organization. This can be held as true both in the business relationship between franchisor and franchisee and in any legal dispute between the two parties.