Franchisors should consider critically examining how they operate, to assess whether cost effective procedural changes can be implemented to reduce the prospect of expensive litigation.
Recruitment
Recruitment staff should be trained in what they can and cannot say when selling to prospective franchisees. Inaccurate pre-contractual statements lead to misrepresentation claims. Recording interviews and discovery meetings is worthy of consideration.
Select the “right”candidates. A franchisee who is the wrong fit for your business is more likely to be a drain on your time and money. Conduct your own due diligence on your candidates such as: DBS and credit checks; online searches; instructing an investigator; or speaking to your lawyer.
Disputes often arise from a franchisee simply not understanding what it is they are agreeing to. Consider the significance of entering into an agreement in your second language without legal advice. Requiring a franchisee to receive legal advice can work to your advantage if a dispute ever arises.
Agreement
Franchise agreements should be drafted by a lawyer that knows about franchising and updated regularly to reflect changes in the business and law.
Concessions and amendments of the franchise agreement’s terms should be properly recorded, both in terms of what the concession is and how long the concession will apply.
Agreement Management
Do not underestimate the importance of knowing how to complete the details of a franchise agreement precedent, and ensuring that it is signed correctly. Consider the use of e-signing software to improve the speed and efficiency of franchise agreement record keeping.
Diarise franchise agreements’ renewal notification and expiry dates. Be pro-active with respect to managing a franchisee’s decision not to renew or failure to respond to an invitation to renew. Implement procedures to retain the customer goodwill of an exiting franchisee, and to secure the return or destruction of intellectual property.
Communication
The franchise systems with the least disputes, are those with teams that recognise the importance of communicating clearly and effectively, particularly when an issue may be sensitive to a franchisee. A collaborative approach is almost always better received than an adversarial approach.
When there is a sensitive issue which could escalate into a legal dispute, it is important to take time to consider how best to communicate. If you are going to communicate in writing, consider whether to ask a colleague or a lawyer to sense check the tone and approach of your proposed correspondence.
Recognise that not all people are the same, in terms of their personalities, training, education or experience. Considering how something is written in the context of that background could help get your point across or prevent misunderstandings.
Dispute Resolution
Ensure that there is a dispute resolution procedure in the franchise agreement. Mediation early on in a dispute can often be quicker and significantly cheaper than a protracted exchange of correspondence or litigation. CEDR offers a low-cost mediation service. Mediation does not require lawyers to be present. Mediations can and increasingly do take place on a remote basis.
