Franchise disputes arise frequently, not because franchisors are necessarily keen to have a fight with their franchisees or the other way round, but because franchise agreements are complex, commercial contracts which last for a considerable period of time, normally between five and ten years and are entered into by a large number of people – many networks have 200 or more franchisees. It is inevitable, in such circumstances, that disputes will arise. Essentially disputes occur when either franchisees believe that they do not receive value from the franchisor or the franchisee fails.

When a franchisee ceases to believe that he obtains value from the franchisor or simply gets greedy, the franchisee will look at ways of doing work/selling products outside the franchise system. Sometimes this involves setting up a separate company either through a member of the franchisee's family or simply not declaring jobs. This is, of course, a really serious situation for a franchisor. It goes to the heart of the relationship between the franchisor and its franchisees. There needs to be trust and good faith. From a franchisor's point of view, if the franchisor allowed franchisees to do this he simply wouldn't have a franchise network and, accordingly, franchisors have to take action when faced with situations such as this because if they don't then other franchisees will do the same.

When a franchisee fails, a franchisee will usually blame the franchisor rather than himself and, on occasions, he may well be right! These claims normally are in two parts. First franchisees allege that franchisors have not complied with their obligations in their franchise agreement and, secondly, that the franchisor made misrepresentations – in other words the franchisor has provided information to encourage the franchisee to sign the franchise agreement which has proved to be untrue. Normally this information is of a financial nature and relates to how much money franchisees can expect to earn.

The best way to handle disputes is always to look for a commercial solution rather than a “fight”. Usually both parties want to resolve the dispute commercially unless the franchisor really believes that it is essential to make an example of the franchisee so as to maintain the integrity of the network. If a commercial solution cannot be found (this could include encouraging the franchisee to sell his franchise business) then franchisors and franchisees need to investigate resolving the dispute by way of mediation. Mediation is usually a relatively quick and inexpensive way of trying to resolve a dispute. It does not involve anyone deciding who is right or who is wrong because all that the mediator does is to encourage the parties to resolve their disputes themselves in a commercial way. Clearly mediation is not appropriate for situations where the franchisor has to take immediate action against the franchisee in order to protect the network, but can be used very effectively in resolving disputes with franchisees. Indeed, in many situations franchisors and franchisees can continue to be “friends” after a mediation. If mediation isn't successful then the parties will inevitably have to consider arbitration - the BFA offers an arbitration scheme - or litigation. Either way it is going to be expensive.

If a franchisee is unhappy with its franchisor and the franchisor is a member of the BFA then franchisees can write to the BFA to complain. The BFA will encourage the parties to resolve their disputes and can, in certain circumstances (although this is very rarely used) oblige its members to participate in arbitration. Certainly if the BFA receives a large number of complaints in relation to similar matters from franchisees it will look very closely as to whether the franchisor should continue to be a member of the BFA.

It is a good idea before embarking on any course of action to obtain legal advice to know how strong or weak your legal position is and to obtain an understanding of the likely costs involved – litigation is a very expensive passtime! When seeking advice from lawyers always try to obtain a clear understanding of the costs involved so that there are no subsequent unpleasant surprises. If you really believe that there is a major problem with the franchise then there are some advantages (as well as disadvantages!) in getting together with other franchisees. The major advantage is, of course, that the payment of lawyers fees can be shared, the franchisor has to take your claim seriously if it is made by a significant number of franchisees and the fact that a number of franchisees are making the same claim reinforces the validity of the claim. The down side is that franchisee actions are difficult to coordinate. Whilst there is normally a great deal of enthusiasm in the early days this often wains and very often franchisees drop out. In addition if you are looking for a repayment or damages from a franchisor your chances of receiving payment may well be reduced if a large number of franchisees are making the same claim because whilst a franchisor might be happy to pay one franchisee £10,000 it may not be able to pay ten franchisees £10,000.

The best advice is to try hard to avoid disputes. Take a long hard look at the situation and obtain impartial and objective advice before you go too far down the dispute route – we have seen too many situations where the dispute simply has too much momentum to stop and, lastly, look at commercial ways of resolving disputes rather than using the courts.