For franchisees, pursuing franchise arbitration can often be the best (and only) option for resolving contentious disputes with their franchisors. Not only is arbitration generally less costly and time-consuming than litigation, but franchise agreements frequently include “mandatory arbitration” clauses that prevent franchisees from asserting their legal rights in court.
If you need to pursue franchise arbitration, you need to be careful—and this starts now. With this in mind, here are some key “dos” and “don’ts” from franchisee attorney Jeffrey M. Goldstein:
DO: Make Sure You Know How Long You Have to File
Most franchisors place strict limits on how long their franchisees have to pursue claims in arbitration. So, if you think you may need to pursue arbitration against your franchisor, you should make sure you know how long you have to file. These contractual deadlines are often far shorter than the applicable statutes of limitations, and if you don’t file by the deadline to which you agreed when you signed the franchise agreement, you could lose your ability to assert your contractual rights.
DON’T: Rush Into Filing for Arbitration
While it is important not to wait too long, it is equally important not to rush into filing for arbitration. Not only are there financial costs involved, but initiating arbitration could also do significant damage to your relationship with your franchisor. Initiating arbitration is a substantial step that requires informed and strategic decision-making, and it is a step that you will want to take (if at all) based on the advice of your franchisee attorney.
DO: Locate and Preserve All Relevant Documents and Communications
When anticipating any type of franchise-related dispute, it is imperative to preserve all relevant documents and communications. This starts with determining where these documents and communications are located. Your franchise may have relevant files stored in numerous locations—from filing cabinets to laptops, phones and cloud servers—and you will need to make sure that you identify all relevant storage locations when preparing for arbitration.
DON’T: Communicate with Your Franchisor About the Dispute
If you are contemplating arbitration, at this point you should generally avoid communicating with your franchisor about the dispute. Any attempts at informal resolution are unlikely to prove effective, and anything you say could end up being used against you during the arbitration proceedings. If attempting to negotiate an informal resolution makes sense, you will want to have your franchisee attorney handle the negotiations on your behalf.
DO: Learn About the Franchise Arbitration Process
Before you pursue arbitration against your franchisor, you should make sure you know what to expect from the process. The cost, timeline, discovery obligations and potential outcomes are all key considerations. The American Arbitration Association’s (AAA) roadmap and fee schedule are good places to start, and our blog includes a wealth of information about the franchise arbitration process as well.
DON’T: Rely Too Heavily on Stories from Other Franchisees
When learning about the franchise arbitration process, it can also be helpful to read franchisee forums and talk to other franchisees in the system (though you should avoid discussing the specifics of your dispute). However, you should avoid relying too heavily on stories you hear from other franchisees. The arbitration process can go a variety of different ways for a variety of different reasons, and other franchisees’ experiences will not necessarily be indicative of what you can expect if you hire an experienced franchisee attorney to represent you.
DO: Comply with Your Franchise Agreement
Regardless of the circumstances at hand, you should continue to fully comply with the terms of your franchise agreement. Even if your franchisor has clearly violated the terms of the agreement, and even if you have suffered severe negative consequences as a result, you need to avoid giving your franchisor any grounds to pursue a counterclaim or initiate termination. Compliance with the franchise relationship is not a tit-for-tat matter. Even if your franchisor is in breach, you still have an obligation to comply until a judge (or arbitrator) says otherwise.
DON’T: Retaliate or Rely on Receiving a Particular Outcome from Arbitration
In this same vein, you need to avoid retaliating against your franchisor. No matter how dissatisfied and frustrated you may be, you should not complain publicly or lash out on social media. You also should not rely on receiving a particular outcome from the arbitration process. Regardless of the facts, the outcome is never guaranteed, and you do not want to do anything that could jeopardize your investment in the future.
DO: Engage an Experienced Franchisee Attorney to Advise You
Given all of the considerations, challenges and risks involved in facing a dispute with your franchisor, it is important to engage an experienced franchise attorney to advise you. Your attorney can help you decide whether to pursue arbitration and, if pursuing arbitration is in your best interests, your attorney can represent you throughout the process. Your attorney can also handle any settlement negotiations on your behalf, and if a reasonable settlement is on the table, your attorney can help you decide whether to accept and review the final settlement agreement.
DON’T: Try to Pursue Franchise Arbitration on Your Own
While some franchisees may be tempted to pursue arbitration without an attorney to save costs, this approach is misguided. Without an experienced franchisee attorney representing you, going to arbitration with your franchisor can prove far more costly. Not only are you likely to run into a variety of unnecessary problems along the way, but you are also far less likely to achieve a favorable result when going up against the franchisor’s defense lawyers on your own.
Schedule an Appointment with National Franchisee Attorney Jeffrey M. Goldstein
Attorney Jeffrey M. Goldstein represents franchisees in all franchise systems in arbitration cases nationwide. If you have questions about pursuing arbitration against your franchisor, we encourage you to contact us promptly for more information. To schedule an appointment with Mr. Goldstein as soon as possible, call 202-293-3947 or request a free consultation online now.