If you are facing a dispute with your franchisor, there is a good chance that you will need to submit to arbitration in order to obtain a resolution. Why? Because arbitration is the preferred dispute resolution method among franchisors, and franchise agreements commonly include “mandatory arbitration” clauses which require franchisees to go to arbitration instead of seeking to enforce their rights in court.
What is Arbitration?
Arbitration is a form of alternative dispute resolution (ADR) that can in some ways be thought of as a “light” version of courtroom litigation. The process is still adversarial (unlike mediation, where the parties seek to work toward an amicable resolution), and a neutral third-party (either an arbitrator or a panel of arbitrators) still issues a binding decision based upon the evidence and arguments presented. The parties also still engage in discovery, although discovery is typically limited, and they still attend hearings at which their attorneys present arguments and question witnesses.
However, arbitration moves at a faster pace than litigation, and as a result it is generally less expensive as well.
Why Do Franchisors Prefer Mandatory Arbitration?
Franchisors generally prefer arbitration for a number of reasons. Some of these reasons have to do with the controls they can exercise within the terms of their mandatory arbitration provisions, but others have to do directly with the nature of the arbitration process. Five of the top reasons that franchisors generally prefer mandatory arbitration include:
- Arbitration denies franchisees the right to a jury trial
- Franchisors can designate their home town as the location for arbitration
- Since franchisors generally have more relevant records than franchisees, limited discovery in arbitration benefits the franchisor
- Franchisors can use mandatory arbitration clauses to prevent franchisees from seeking punitive damages
- Through mandatory arbitration provisions, franchisors can effectively require franchisees to pay for the right to assert a counterclaim in a franchisor-initiated dispute
For more on these issues, you can read our prior article: Arbitration: Fast But Not Necessarily Fair.
Is Arbitration Worth It?
Given these considerations, if you have a dispute with your franchisor, is it worth it to take your claim to arbitration?
This is a legitimate question, and one that requires careful analysis. Going to arbitration will cost you, and in order to determine whether the cost is justified you will need to weigh a number of different factors. What can you expect from a favorable result? What are your chances of success? What impact will filing for arbitration have on your relationship with your franchisor? Does it matter? These are just some of the questions you will need to answer in order to make an informed decision.
Of course, in many cases it is worth it, and many franchisees have been successful in using arbitration to enforce their franchisor’s legal and contractual obligations. Your franchise agreement’s arbitration clause may include a short limitations period (after which you will waive your right to pursue a claim), so it is important that you get started on the analysis right away.
Schedule a Free Consultation with Franchise Litigation Attorney Jeffrey M. Goldstein
If you would like to speak with an attorney about pursuing a possible arbitration claim against your franchisor, contact the Goldstein Law Firm for a free, confidential consultation. To get started, call our Washington D.C. law offices at 202-293-3947 or request an appointment online today.
