All businesses experience disputes with other businesses from time to time, and franchises are no exception. As a franchisee, what should you do if you get into dispute with your own franchisor?
Franchising, and a franchising dispute, is regulated under the Franchising Code of Code (Code). The Code sets out procedures for resolving disputes. One of the main ways of resolving disputes is by mediation.
Process for resolving franchising disputes
A franchise agreement must contain an internal procedure for handling complaints. Under this process, you must first write to the franchisor to tell them about the dispute to try and resolve it. If you can’t resolve the dispute in three weeks, you can refer the dispute to mediation.
What is mediation?
Mediation is a low cost and confidential way to resolve a franchising dispute. It avoids the uncertainty, cost and disruption often associated with tribunal and court proceedings. Mediation is a process of negotiation that assists both parties – franchisee and franchisor – identify and explore options to resolve the dispute.
Mediation is conducted by a mediator. The parties can appoint their own mediator, or a mediator appointed by a State Small Business Commissioner, or the Office of the Franchising Mediation Adviser (OFMA).
What is the role of the mediator?
The mediator is an independent person who:
- assists the parties communicate openly
- assists in identifying options
- assists the parties reach their own agreement or settlement.
Importantly, mediators:
- are not judges
- do not decide who is right or wrong
- do not make binding determinations or decisions
- do not provide legal advice
The role of the mediator is to help both franchisee and franchisor reach their own agreement – this encourages a win-win outcome for both parties.
Benefits of mediation
It is effective
Mediation settlement rates for franchising disputes are consistently about 80 percent. This is a high success rate for resolving commercial disputes.
As mediation involves negotiation and compromise, not every one gets every thing they want at mediation. However, mediation provides the opportunity, with a structured process, to maintain an ongoing franchising relationship, so both parties can ‘get on with business’.
It is empowering
By being personally involved in resolving the dispute, you are in control of the outcome – not some third party court or tribunal. This enables solutions which are more flexible, creative and business driven.
It is affordable
Mediation is generally low cost, for both parties, particularly when compared to preparing for litigation.
It is efficient
Franchising mediations typically take between a half or full day, depending on the complexity of the issues in dispute.
Note that for franchising agreements entered into, renewed, transferred or varied after 1 January 2015, the franchisor cannot require the mediation to be held outside the state/territory in which the franchisee is based.
It is informal
Mediation is not like attending court. Mediations are held in a meeting room with parties seated around a table.
Parties can attend mediation in person if they like. Neither party is required to have a lawyer present. Sometimes, depending on the issues in dispute, it is useful to have a lawyer involved. Engaging a lawyer may be an additional cost. However, it may be money worth spending, if it assists in resolving the dispute.
Note that for franchising agreements entered into, renewed, transferred or varied after 1 January 2015, the franchisor cannot require the franchisee to pay its costs in relation to settling the dispute.
It is confidential
Mediation is confidential. As mediation discussions cannot be used by either party in other legal proceedings, this encourages an open discussion about all issues in dispute.
Mediation process
While mediators may have different styles, the following steps in the mediation process are typical:
- Upon arrival at the mediation venue, each party is seated in separate, private, breakout rooms
- The mediator enters each room and introduces him/herself to each party. The mediator has a short private discussion with each party
- The mediator invites both parties into the main mediation room
- The mediator explains the mediation process to both parties
- The mediator invites each party to explain its position and understanding of the dispute
- The mediator asks questions to clarify a party’s stance
- During mediation, a party should direct questions through the mediator, rather than to the other party
- The mediator attempts to simplify and clarify key issues in dispute
- The mediator asks each party to return to its separate breakout room
- The mediator moves between the parties, seeking options, clarifying positions and identifying opportunities for negotiation or compromise, until an outcome is reached or not reached
- If mediation results in settlement of the franchising dispute, formal Terms of Settlement are drawn up. Both parties confirm and sign the Terms.
- If no settlement is reached and mediation fails, a certificate may be issued. Either party can produce this certificate as evidence in any subsequent litigation.
Some organisations have produced guidance material about the mediation process. The Office of the Victorian Small Business Commissioner (VSBC) Mediation Guide is available here.
Where to get more information
Contact the Small Business Commissioners in Victoria, NSW, WA and SA, or the OFMA, for more information about mediating franchising disputes. The Australian Competition and Consumer Commission also provides useful franchising information.
Victorian Small Business Commissioner: www.vsbc.vic.gov.au or ring 13 8722
NSW Small Business Commissioner: www.smallbusiness.nsw.gov.au or ring 1300 795 534
WA Small Business Commissioner: www.smallbusiness.wa.gov.au or ring 13 12 49
SA Small Business Commissioner: www.sasbc.sa.gov.au or ring 1800 072 7222
Office of the Franchising Mediation Adviser: www.franchisingmediationadviser.com.au or ring 1800 150 667
Australian Competition and Consumer Commission: www.accc.gov.au or ring 1300 302 021