Arbitration is an alternative dispute resolution (ADR) process that is designed to be neutral while also being less expensive and less time-consuming than litigation. While the arbitration process achieves these goals in most cases, it is important to put the neutrality, cost and duration of arbitration into context. While the arbitration process is facially neutral, franchisors can (and do) take steps to sway the process in their favor. Additionally, while arbitrating a dispute may be less costly and less time-consuming than going to court, franchisees still must often think carefully about whether it is truly worth moving forward.
As a franchisee, it is important to have realistic expectations. This applies throughout the franchise lifecycle—from the buying process to resolving disputes with your franchisor. This is one of many reasons why it is important to have an experienced franchise attorney on your side. Regarding arbitration, while franchise arbitration can be an effective tool for protecting franchisees’ rights, franchisees must ensure that they have a clear understanding of what to expect (and what not to expect) from the process.
What Franchisees Can (and Should) Do to Prepare for Franchise Arbitration
When preparing to arbitrate a dispute with your franchisor, getting ready can make all the difference. If you are thoroughly prepared for the arbitration process, you can more realistically expect a favorable outcome (assuming the facts and law are in your favor). With this in mind, here are 10 tips for preparing to arbitrate a dispute with your franchisor:
1. Review Your Franchise Agreement’s Dispute Resolution Section
One of the first steps you will want to take is to carefully review your franchise agreement’s dispute resolution section. If your franchise agreement has a mandatory arbitration clause, does it apply to the issue you are facing currently? Are you required to mediate before you arbitrate? Where are you required to arbitrate? What does the agreement say about the costs of the arbitration process? These are all important questions to consider as you make decisions going forward.
2. Review the Relevant Substantive Terms of Your Franchise Agreement
Along with reviewing your franchise agreement’s dispute resolution section, you should also review the relevant substantive terms of the agreement. Does it really say what you think it says? Is there a relevant “cure” period? Is there a relevant damages cap? Have you waived your right to pursue certain types of claims? These are all key questions as well.
3. Learn About the Franchise Arbitration Process
If you are considering franchise arbitration, you will want to make sure you have a clear understanding of what to expect along the way. The American Arbitration Association (AAA) has published a roadmap, and reviewing this roadmap is a good place to start. As you will see, while arbitration is typically faster than litigation, it isn’t “quick” by any means, and there are several formal steps in the process that require the advice and representation of an experienced franchise attorney.
4. Start Locating Relevant Documents and Communications
If you will be arbitrating a dispute with your franchisor, you will need to have all relevant documentation and communications on hand. While you don’t necessarily need to start collecting these now, you should at least know where you can find them when the time comes. With that said, if you have any documents or communications that you believe are particularly relevant, it is a good idea to go ahead and make copies that you can reference during your free consultation with a franchise attorney.
5. Schedule a Free Consultation with a Franchise Attorney
Speaking of your free consultation with a franchise attorney, now is the time to schedule an appointment. When preparing for franchise arbitration, you need to go in eyes wide open. An experienced franchise attorney should be able to explain everything you need to know and guide you through the process of building as strong a case as possible.
6. Avoid Discussing Your Dispute with Anyone Other Than Your Franchise Attorney
At this point, you should generally avoid discussing the dispute with anyone other than your franchise attorney. Don’t bring other franchisees into the fold, and don’t say anything to your franchisor. Resolving your dispute favorably will require a strategic approach, and saying the wrong thing to the wrong person could compromise your arbitration strategy.
7. Conduct a Cost-Benefit Analysis
As we mentioned in the introduction, arbitrating a dispute with your franchisor will not necessarily make financial sense in all cases. Before you commit to arbitration, you should perform a careful cost-benefit analysis. How much will it cost to arbitrate (keeping in mind that you and your franchise attorney will most likely be required to travel to the city where your franchisor’s headquarters are located)? What are the risks involved? How much do you stand to gain if you win? You should answer these questions before making any decisions about how to move forward.
8. Consider Viable Alternatives
Before moving forward, it is also important to consider viable alternatives. Do you have the leverage you need to convince your franchisor to settle? Do you have a state franchise law claim that you can pursue in court? While arbitration will often be necessary, it is not necessary in all cases.
9. Make Sure You File Your Demand for Arbitration in Time
Your franchise agreement may state a deadline for initiating claims in arbitration. If your franchise agreement imposes a deadline, you will need to make sure you file your Demand for Arbitration on time.
10. Get Ready for a Fight
Finally, regardless of your relationship with your franchisor to date, when pursuing franchise arbitration you need to be prepared for a fight. In arbitration, you will be dealing with the franchisor’s top executives and defense lawyers, and during the arbitration process, their only goal is to do whatever it takes to protect the company’s finances and reputation.
Request a Free and Confidential Consultation with Franchise Attorney Jeffrey M. Goldstein
Do you have questions about pursuing arbitration against your franchisor? If so, we invite you to get in touch. To request a free and confidential consultation with franchise attorney Jeffrey M. Goldstein, call 202-293-3947 or inquire online today.