As a franchisee, there is a good chance that you are required to resolve any disputes with your franchisor through alternative dispute resolution (ADR)—either mediation or arbitration. Franchisors like mandatory ADR clauses for a variety of reasons, and they tend to favor mandatory arbitration clauses in particular. Arbitrating a dispute with your franchisor requires experienced legal representation; and, if you are facing a dispute with your franchisor in Massachusetts, you will want to speak with a Boston franchise attorney as soon as possible.
But, all of this raises an important question: Are franchisors’ mandatory arbitration clauses enforceable in Massachusetts?
The short answer is, “Yes.” While the Massachusetts courts will deem mandatory arbitration clauses unenforceable in some circumstances, these circumstances generally involve agreements with employees and consumers. In the business-to-business context, the courts will respect the parties’ agreement in nearly all cases. As a result, if your franchise agreement includes a mandatory arbitration clause, you should generally be prepared to arbitrate any disputes that you are unable to resolve informally.
What Does Your Franchise Agreement’s Arbitration Clause Really Say?
With this in mind, what do you need to know if you are facing a dispute with your franchisor? To ensure that you are making informed decisions, the first step you need to take is to carefully review the relevant provisions of your franchise agreement. Along with any relevant substantive provisions, this includes your franchise agreement’s arbitration clause.
While mandatory arbitration clauses generally compel franchisees to submit their disputes to arbitration, the specific wording of these clauses matters. So, when reviewing your franchise agreement’s arbitration clause, you should do so with a critical eye. What does your franchise agreement’s arbitration clause really say? Does it require arbitration of all disputes? Or, are there any exceptions (or inadvertent omissions)? Even if your franchisor’s goal was to compel arbitration of all disputes, its mandatory arbitration clause may or may not serve this purpose.
If you have a claim that isn’t covered under your franchise agreement’s mandatory arbitration clause, then it will be up to you to decide how to proceed. Even if arbitration isn’t mandatory, it could still be the most cost-effective solution. There is also a possibility that your franchisor will still attempt to compel arbitration (whether rightly or wrongly), and disputes over the applicability of mandatory arbitration clauses can add to the costs involved in protecting your rights as a franchisee. Ultimately, you need to make an informed decision based on due consideration of all pertinent legal and factual circumstances, and this involves discussing your dispute with an experienced Boston franchise attorney.
How Should Franchisees Prepare for Arbitration?
Let’s say filing for arbitration is your only (or best) option. How should you prepare for arbitration as a franchisee?
While arbitration is generally less formal and less costly than litigation, it is still a formal legal process that is subject to stringent rules and procedural requirements. As a result, an informed, strategic and forward-thinking approach is key.
Preparing for arbitration starts with ensuring that you have a clear and comprehensive understanding of both the factual and legal issues involved. Do you have a clear claim for breach? Does your franchisor have a clear claim for breach? Do you have any non-contractual claims against your franchisor, such as a claim for discrimination or other unfair franchise practices? Does your franchise agreement limit (or specify) the remedies that are available to either party? These are all critical questions that you need to answer before initiating the arbitration process.
In addition to ensuring that you are making informed decisions, you also need to make sure that you are prepared to move forward. Do you have all of the documentation you need? Are you prepared to implement a “litigation hold” so that your franchisor cannot accuse you of failing to preserve relevant records? These are critical questions as well—and, while it can be important to move quickly in some cases, moving forward before you are ready to do so can put you at a disadvantage.
What Can Franchisees Expect from the Arbitration Process?
Along with knowing how to prepare for the arbitration process, it will also be important for you to know what you can expect along the way. This will allow you to strategize and plan for each stage of the process as it approaches. As explained in the American Arbitration Association’s (AAA) Arbitration Road Map, the key stages in the arbitration process are:
- Filing and Initiation
- Arbitrator Selection
- Preliminary Hearing
- Information Exchange and Preparation
- Mediation (Unless Either Party Opts Out)
- Hearing
- Post-Hearing Submissions
- Arbitration Award
With that said, parties can settle at any stage of the arbitration process, and the vast majority of franchisor-franchisee disputes are resolved via settlement. Even if you and your franchisor are not on speaking terms when you initiate the arbitration process, it may ultimately become clear that it is in both parties’ best interests to come to the settlement table. Your Boston franchise attorney should be able to help you make informed decisions about approach settlement negotiations as well; and, if it is in your best interests to settle, your attorney should be able to negotiate effectively on your behalf—with a focus on securing your desired outcome with as few compromises as possible.
While franchisees never plan to go to arbitration with their franchisors, arbitrating a dispute will prove necessary in some cases. If you are facing a dispute with your franchisor in Massachusetts, we invite you to contact us for more information.
Learn More from Boston Franchise Attorney Jeffrey M. Goldstein
Boston franchise attorney Jeffrey M. Goldstein has well over 30 years of experience representing franchisees in arbitration and other dispute resolution proceedings. If you are facing a dispute with your franchisor, he can help you make informed decisions about your next steps and help you pursue arbitration if necessary. To learn more in a free, no-obligation consultation, call us at 202-293-3947 or request an appointment online today.
