As a franchisee, maintaining a good working relationship with your franchisor is important. It’s important for managing the stress of franchise ownership, it’s important for maintaining good lines of communication, and it’s important for managing your risk. If you get labeled a “problem franchisee,” not only can everything become much more difficult, but it can also put your franchise (and possibly your finances) in jeopardy.
So, how should you deal with being labeled a “problem franchisee”?
Try to Avoid Making the Situation Worse Than It Already Is
In this scenario, it is important to try to avoid making your situation worse than it already is. Do not give your franchisor a reason to have any complaints. Even if you are being treated unfairly, you must continue to comply with your franchise agreement, and you must operate your franchise in strict accordance with the Operations Manual. If you breach your franchise agreement, not only might you give your franchisor reason to be frustrated (or even more frustrated than it already is), but you might also give your franchisor grounds to terminate your franchise.
In this same vein, you should generally avoid complaining about your franchisor online or venting your frustrations on social media. This can also do more harm than good. For now, keep your concerns between yourself and your franchise attorney—as taking your dispute public can also do more harm than good.
Try to Understand Why Your Franchisor is Dissatisfied
Unless you are approaching the end of your franchise term and choosing not to renew, your main options in this situation are: (i) do your best to restore the relationship and keep your franchise running; (ii) try to work out an amicable separation that allows you to walk away with minimal consequences; or, (iii) pursue dispute resolution (which will most likely involve mandatory mediation or arbitration). Choosing the option that makes the most sense requires an understanding of why your franchisor is dissatisfied.
Have you repeatedly been late on royalty payments? Do you operate outside of the lines of the Operations Manual? Do you market in other franchisees’ territories (i.e., with pay-per-click (PPC) advertising)? If your answer to any of these questions is “Yes,” then you may be able to remedy the issue by coming into compliance—and you may need to remedy the issue in order to avoid the risk of early termination. On the other hand, if your franchise is compliant, but you and the franchisor’s representatives simply don’t get along, then it could potentially be in both parties’ best interests to part ways.
With that said, you have likely invested a substantial sum of money in your franchise, and you may have loan payments, lease payments and various other long-term obligations. When dealing with issues with your franchisor, these obligations are important to consider as well, as they won’t simply go away if you cease to be a franchisee.
Find Out if Other Franchisees Are Dealing with Similar Issues
If you are struggling to find success as a franchisee or having trouble getting along with your franchisor, there is a good chance that you are not alone. If other franchisees find themselves in similar circumstances, this is a fact that you will want to know.
For franchisees, strength comes in numbers. As an individual franchisee, it can often be difficult to get your voice heard (unless you compel your franchisor to listen by initiating mandatory mediation or arbitration). But, when franchisees band together and take action collectively, this can often be a much more effective vehicle for change. If your franchisor is the one that is responsible for the circumstances at hand, then working with other franchisees as a group could be a good option.
Prepare for Dispute Resolution (i.e., Mediation or Arbitration) if Necessary
In some situations, formal dispute resolution will be the only path forward for resolving issues related to being labeled a “problem franchisee.” Your franchisor may be considering legal action, or you may need to take legal action to stand up for yourself and protect your franchise rights.
Whatever the case may be, if mediation or arbitration is the inevitable next step, it is important to be prepared. At this stage, you will want to speak with a franchise attorney to make sure you understand what your franchise agreement requires, what you can expect during the process, and what you can expect in terms of potential outcomes in light of the circumstances at hand.
If you believe you may be at risk for termination, it is generally best to take action before your franchisor issues a termination notice. Once your franchisor issues a termination notice, this puts in motion a set of steps that can add to the challenges of protecting your franchise (if this is what you want). In any case, you don’t want to be on the back foot, and taking a proactive approach to your dispute can help facilitate a positive outcome.
Get Advice Before Doing Anything that Could Jeopardize Your Franchise
There is no one-size-fits-all solution to being labeled a “problem franchisee.” Determining your best approach requires a careful assessment of the circumstances of your particular situation. This includes not only the relevant facts but also the relevant terms of your franchise agreement and the laws that govern the franchise relationship in your state.
With this in mind, you should get advice before doing anything that could jeopardize your franchise. This means speaking with an experienced franchise attorney in confidence as soon as possible. Once you get advice from an attorney, you can start making informed decisions, and you can move forward with confidence.
Request a Free Consultation with Franchise Attorney Jeffrey M. Goldstein
Do you need help dealing with your franchisor? If so, we invite you to get in touch. Franchise attorney Jeffrey M. Goldstein has over 30 years of experience exclusively representing franchisees. To discuss your situation with Mr. Goldstein in confidence, please call 202-293-3947 or request a free consultation online today.
