International Law

Are Franchisors Unfair?

Stan Turkel writes that

Fair Franchising Is Not An Oxymoron: Dispute Resolution | Blue MauMau

"In 1998, the Asian American Hotel Owners Association identified a set of standards called the 12 Points of Fair Franchising by which to judge the actions of franchise companies. Now, nine years later, AAHOA has updated the 12 points and has embarked on a survey of franchisors to assess their compliance with these fair franchising standards. In this Hotel Interactive article, I highlight Point 8.

Point 8: Dispute Resolution. In all franchise agreements, Franchisors and Franchisees should commit to establishing an independent and fair process for the resolution of any disputes concerning the terms of an franchise agreement itself, or the relationship between the parties. Specifically, Franchisors and Franchisees should agree in good faith to participate in an informal, in-person meeting between the authorized representatives of the parties in an attempt to resolve a dispute.

If the informal meeting is unsuccessful, the parties should agree to participate in a non-binding mediation, before a mediator who is neutral and mutually acceptable to the parties, including a mediator associated with the National Franchise Mediation Program.

If the mediation is unsuccessful, the dispute should not be submitted to binding arbitration unless and until all parties agree to do so, including mutually agreeing on the arbitrator who will hear the dispute, the location of the arbitration proceedings, and the corresponding rules and procedures for the arbitration.

Absent an agreement by the Franchisor and Franchisee to use binding arbitration to resolve their dispute, any party should be entitled to pursue its claims against another party in a court of law. There should be no waiver of the right to a jury trial by any party. There also should be no caps or limits on the amount of damages that a party can seek or recover against another party, including a cap or limit on the amount of punitive damages that can be recovered against a party as allowed by law.

I don't think that this will necessarily work.

There is a real difference between mediation versus arbitration/litigation is that the former aims at preserving the relationship and the latter is appropriate for severing the relationship.

There is not a natural step-up from mediation through to arbitration and litigation.

Finally, I am very surprised that the AAHOA as the largest franchisee association in North America is not out in front and representing their franchisees in arbitration.

The major complaint against arbitration in commercial relations is that one party is a "repeat user" and gains an advantage in the proceedings.

That complaint would be mitigated if the independent franchisee associations were always in front of the arbitrator.

Full post as published by Misleading Advertising Law on February 14, 2008 (boomark / email).