As a franchisee, facing a dispute with your franchisor can be a stressful and frustrating situation. But it is important not to lose your cool. You need to be careful to protect yourself—and while this means taking certain steps, it means avoiding several potentially costly mistakes as well.
7 Mistakes to Avoid When Facing a Dispute With Your Franchisor
So, what should you not do if you are in a dispute with your franchisor? Franchisee lawyer Jeffrey M. Goldstein explains:
Mistake #1: Violating Your Franchise Agreement
If you are facing a dispute with your franchisor, you need to be very careful to avoid violating your franchise agreement, if possible. You do not want to give your franchisor anything that it can use against you—including anything that it could potentially use to justify early termination of your franchise. Even if your franchisor is clearly in breach of your franchise agreement, this does not entitle you to withhold royalties or otherwise deviate from your contractual obligations.
What if you can’t comply with your franchise agreement? For example, what if you can’t afford to make your royalty payments? In this situation, you need to be very careful, and you should discuss your options with an experienced franchisee lawyer promptly.
Mistake #2: Threatening to Violate Your Franchise Agreement
Just as you should not violate your franchise agreement (if you can help it), you also should not threaten to violate your franchise agreement. This could be deemed an anticipatory breach or constructive breach, and it could have the same consequences as actually failing to meet your contractual obligations. Additionally, threats also almost invariably invite further disputes, and at this stage, you do not want to make your situation any more confrontational than necessary.
What if your franchisor is making threats? Once again, you must resist the temptation to respond in kind. Instead, document your franchisor’s communications, and be prepared to discuss your franchisor’s threats in detail with your lawyer.
Mistake #3: Going Public on Social Media
When facing a dispute with your franchisor, it is also generally a mistake to go public on social media. Not only can this cause tensions to escalate, but it can also potentially violate your duty of confidentiality or other obligations under your franchise agreement. While it can be tempting to let the public know what is going on—especially if your franchisor is engaging in conduct that is detrimental to your relationships with your clients or customers—taking to social media can be risky. It might be okay to make certain statements publicly, but, again, you will want to speak with an experienced franchisee lawyer to ensure that you are making informed decisions.
Mistake #4: Ignoring System Standards or Operational Requirements
In addition to staying in compliance with your franchise agreement, you should also make sure you stay in compliance with the system standards and operational requirements imposed under your franchisor’s Operations Manual. Franchise agreements typically include provisions that “incorporate by reference” the franchisor’s Operations Manual. This means that it is as if the language of the Operations Manual is included in the franchise agreement—and violating the Operations Manual amounts to a violation of the agreement.
What if you can’t comply? Or, what if complying would be harmful to your business? Many franchisor-franchisee disputes involve these types of scenarios. Here, too, you need to be very careful, and it will be in your best interests to speak with a franchisee lawyer about your specific circumstances.
Mistake #5: Waiting to See if Things Improve
When you buy a franchise, you don’t expect to end up in a dispute with your franchisor. You expect things to work out; and, as a result, when you find yourself faced with a dispute, it can be tempting to wait and see if things will get back to the way things were.
Unfortunately, the reality is that these types of situations rarely improve on their own. In fact, it is much more likely that your situation will continue to devolve. With this in mind, a proactive approach is almost always best—and by taking appropriate action promptly, it may be possible to salvage the relationship and protect your franchise.
Mistake #6: Trying to Handle Your Situation on Your Own
Dealing with a franchise dispute is never easy. Along with the financial and business issues you are facing, your dispute may involve a variety of legal issues as well. As a result, rather than trying to handle your situation on your own, it is important that you consult with an experienced franchisee lawyer who can help you fully understand the implications of all potential outcomes.
Even if mediation or arbitration is unnecessary, your lawyer can help chart your next steps, and your lawyer can communicate with your franchisor (or its legal team) on your behalf if warranted. If you need to take legal action to protect your rights, your lawyer can take all necessary steps to institute formal dispute resolution proceedings and help you target a favorable resolution.
Mistake #7: Hiring a Lawyer Who Doesn’t Have Experience in Franchising
Finally, when choosing a lawyer to assist with your franchise dispute, it is important to choose a lawyer who has extensive experience in franchising. Franchisor-franchisee disputes are unique in many ways, and a lawyer who doesn’t handle them regularly won’t be able to offer the insights and advice you need. On the other hand, a lawyer who routinely represents franchisees in disputes with their franchisors will know exactly what to do (and what not to do), and will be able to strategically guide you through your next steps.
Schedule a Free and Confidential Consultation with Franchisee Lawyer Jeffrey M. Goldstein
Franchisee lawyer Jeffrey M. Goldstein has more than 30 years of experience representing franchisees in disputes with their franchisors. If you need help with a franchise dispute, you can call 202-293-3947 or contact us online to arrange a free and confidential consultation at Goldstein Law Firm.