How to resolve franchising disputes

Disputes between a Franchisor and Franchisee can be costly and lead to ongoing unnecessary tension in the relationship if not resolved early.

The Franchising Code of Conduct (Code), provides a mechanism for parties who are in a franchise relationship to resolve disputes. 

The benefit to both parties is that this can lead to the resolution of a dispute in a timely and cost-effective manner.

The Code requires that Franchisors must have in place an internal procedure for handling complaints. This must be clearly set out in the franchise agreement and meet certain minimum standards set by the Code.

When a dispute arises, either party may initiate the complaint handling procedure under the Code, or under the franchise agreement.

The Code requires you to first try to resolve your dispute with the other party by writing to them outlining:

• the nature of the dispute
• what outcome you want
• what action will settle the dispute.

If the parties cannot agree on an outcome within three weeks, either party may refer the matter to mediation, which involves an informal negotiation between the parties which will be facilitated by an independent third party.

These services are provided by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) and they can provide information on the dispute resolution processes under the Code, options to resolve disputes and access to mediation services to franchisors and franchisees.

The Small Business Commissioner can provide you dispute resolution services including appointing a mediator.

Once a mediation is requested, it is mandatory for both parties to attend and to make a genuine attempt to try and resolve the dispute.

It is important to remember that the mediator will not give legal advice or make a binding decision as a judge would do in a court. Their role is to assist the parties to come to a solution to the dispute that both parties can live with and accept.

The parties should approach the mediation with a view to trying to resolve the issue in dispute.

Mediation is a cost-effective way to resolve franchising disputes without resorting to complex and costly legal action.

If the parties cannot agree on a mediator then the Mediation Adviser, who is appointed under the Code and is part of the Department of Industry, Science, Energy and Resources (Department) can at the request of either party appoint a mediator.

It is important to note that the Australian Competition and Consumer Commission (ACCC) cannot appoint a mediator or oversee the mediation process.

The role of the ACCC is to regulate the Code and investigate alleged breaches and it can issue an infringement notice or ask a court to impose a financial penalty.

The Code prohibits franchise agreements from containing a clause that requires mediation to be conducted, or an action/proceeding to be brought outside of Australia, or in a particular state or territory (other than where the franchisee is based).

The dispute resolution procedure in the Code does not affect a party’s right to take legal action over a franchising dispute.

For example, mediation may not be appropriate if you require urgent relief or when legal action is appropriate to protect either parties’ rights.

Legal action can have a have a significant financial and personal impact on a party and it is important to explore all your options and seek legal advice form experienced professionals.

Need further help with franchising disputes?

Our team at FC Lawyers has assisted both franchisors and franchisees with a range of disputes. We will always look for the most cost-effective options where possible and provide practical advice.

Contact out team today to discuss your franchising needs.