Starting a franchise is an excellent way to expand your business while taking on fewer risks and expenses than you would independently. However, as a franchisor, you must work closely with your franchisees to ensure that your brand and quality remain consistent across locations. If your franchisees disagree with you about managing their stores, you may need legal assistance resolving the dispute.
One of the most effective ways to manage franchise disputes is to pursue arbitration. Arbitration facilitates pursuing binding legal decisions quickly and efficiently. Here’s how it works and the benefits of arbitration for franchise owners.
What Is Business Arbitration
Arbitration is one of the most popular forms of alternative dispute resolution. Instead of going to court to have a matter heard by a judge, disputing parties agree to resolve their disagreement by appearing before a neutral third party, known as an arbitrator. The parties select the arbitrator or panel of arbitrators instead of being assigned a judge at random in a typical court proceeding.
Like an ordinary court proceeding, an arbitrator acts as a neutral third party, hears both parties’ arguments, and decides how to resolve the matter. This decision is legally binding, and both parties must follow it. Unlike court rulings, arbitration does not provide a route for appealing decisions. Furthermore, arbitration rulings are not a matter of public record and are shielded from public view, protecting both parties’ privacy.
In franchise law, there are two ways that parties may engage in arbitration in the event of a dispute between a franchisor and franchisee. First, the franchisor and franchisee may voluntarily agree to pursue arbitration when a dispute arises. In this case, both parties may have the right to take disputes to court, but they waive that right after a disagreement arises and choose to arbitrate instead.
The alternative scenario occurs if an arbitration agreement is in place. When contracting, franchisors may elect to include arbitration clauses in their agreements, requiring franchisees to consent to arbitrate some or all disputes before any disputes arise. While Congress has banned mandatory arbitration clauses for sexual harassment and assault cases in 2022, contracts may still require franchisees to arbitrate matters such as contract violations and billing disputes.
Benefits of Arbitration for Franchises
There are many benefits to arbitration for franchise owners. Compared to litigation, arbitration clauses offer:
- Speed: Because arbitration does not require scheduling hearings in crowded public courts, most cases are heard and resolved significantly faster than they would be otherwise. You can schedule hearings in front of the arbitrator on a schedule that meets your needs and potentially reach a resolution in weeks instead of months or years.
- Cost: As arbitrating matters is far less time-consuming, it is also less expensive. While you will need to pay the arbitrator for their time, you will likely spend significantly less on legal counsel throughout the process.
- Control: You and the other party will work together to choose an arbitrator who meets your preferences. This allows you to control who oversees the process and makes the decision rather than accepting whichever judge is assigned to your case by the court. Both parties to the arbitration can maintain greater control throughout the dispute process.
- Privacy: Unlike court cases, arbitration proceedings are not matters of public record. This is excellent for franchises who want to protect their reputations and maintain a level of discretion. If you face a dispute about sensitive issues that could reflect poorly on your brand, you do not want every detail to be available in the county court records. Arbitrating them lets you keep this information private, protecting your company’s reputation.
Of course, arbitration is not the perfect solution for all situations. The lack of a standard appeal process can make overturning an arbitrator’s decision difficult if you believe it is unfair. It may be worthwhile to reserve the right to take cases to court if they meet specific criteria, such as significant contract violations or pursuing civil damages for criminal acts. Still, for most franchise owners, arbitration is a convenient, cost-effective way to resolve disputes without damaging their brand’s reputation.
Qualified Commercial Legal Counsel for Franchise Arbitration
While arbitration does not require a party to have legal counsel, it is still in your company’s best interest to consult with proven franchise law attorneys when you face disputes.
At EPGD Business Law, we have decades of experience representing clients and providing legal counsel regarding franchise disputes. We will help you understand your rights and responsibilities regarding your franchisees and how to approach the arbitration process to achieve the best possible outcome. Schedule your consultation today to learn how our Miami franchise lawyers can help you use arbitration to resolve disputes.