Just like in any contract, there will always be disputes in franchise agreements. To help parties who are caught up in these situations, franchise dispute lawyers have the specialty and knowledge that will save the day.
What is a franchise dispute?
Franchise disputes are disagreements between franchisors (those who granted the use of the franchise license) and franchisees (those licensed to use the franchise).
These disputes may arise in different phases of the agreement, such as:
- before the signing of a franchise agreement
- during the implementation of the franchise agreement
Examples of franchise disputes
In general, franchise disputes are contractual. This means that franchise disputes are violations of the franchise agreement’s provisions. It can also be statutory, such as the violation of Canadian laws governing franchises.
Some examples of franchise disputes include:
- bad faith conduct
- breach of franchise agreement
- breach of non-compete clause
- disclosure documents
- intellectual property infringement
- marketing issues
- misrepresentations
- operations and management concerns
- royalties and payments
- territorial rights
Jennifer Dolman, a Litigation Partner at Osler, Hoskin & Harcourt LLP, who handles disputes for franchisors, provided some practical examples where franchise disputes may arise.
“Conflicts may arise in various scenarios, including if a franchisee is unwilling to conform to what the franchisor requires, and think they know more than the franchisor about running a business; if the franchisee doesn’t want to do the work required to learn the business; and if the franchisee, once trained, becomes frustrated with having to pay the franchisor royalties, forgetting the bargain made with the franchisor.”
Dolman also said that there are times when franchisees don’t think they’re getting adequate support or that the franchisor isn’t treating them fairly. “[I]n other instances, franchisees just want to do the bare minimum and aren’t performing their obligations with the requisite spirit or properly representing the brand,” Dolman adds.
Disputes may also arise even after a franchise agreement has ended. “When the franchise relationship goes awry, there can be disputes over defaults and terminations, and enforcing post-termination covenants like non-competes,” says Dolman.
As explained further below, here’s a video that explains some of the ways to resolve franchise disputes:
To know more about these methods of resolving franchise disputes, contact a lawyer in your area. If you’re in Vancouver, reach out to any of the best franchise lawyers in British Columbia, ranked by Lexpert.
Conflicts based on Canadian franchise laws
Dolman pointed out that another area of dispute is over the disclosure that a franchisee must obtain prior to entering into a franchise agreement, as provided by Canada’s franchise laws.
“Six (and soon likely seven) provinces in Canada (Alberta, British Columbia, Manitoba, New Brunswick, Ontario and Prince Edward Island with Saskatchewan having introduced legislation in Fall 2023) have franchise legislation which is akin to consumer protection legislation, and mandates, with few exemptions, that a franchisee receive a disclosure document before entering into a franchise agreement.”
She also explains the consequence if the law has been violated. “If a franchisor doesn’t make proper disclosure, the franchisee may be able to get out of the relationship and recover its investment as well as any losses,” Dolman says.
How can a franchise dispute lawyer help?
Franchise dispute lawyers are called to represent clients when disputes related to franchises arise.
They give legal advice and can represent either party in the contract, namely the franchisee or the franchisor.
In some cases, a franchise dispute lawyer is the retained counsel of a party to the franchise agreement.
“The job of a franchise lawyer and franchise dispute lawyer often overlap; both advise on what is a franchise as defined under the legislation, address various franchise relationship issues, including defaults and terminations, and assess risk,” says Dolman.
However, there are also cases where a party – who does not have retained counsel – seeks the help of a franchise dispute lawyer when problems have already come up.
Enforce dispute resolution clauses
There are some franchise agreements which have dispute resolution clauses. These clauses will explain the step-by-step process of how a franchise dispute can be resolved without going to court.
Franchise dispute lawyers can guide clients in enforcing the dispute resolution clause found in their franchise contract.
Since going to court without even enforcing a dispute resolution clause is a violation of the agreement itself, a franchise dispute lawyer will help clients follow this clause first. The clause may also include the law that will be enforced and the court where such dispute is to be filed.
This is important in cases where either party is a non-Canadian resident or citizen, or when there’s an international element in the contract.
Out-of-court proceedings
Since dispute resolution will often not involve the court, a franchise dispute lawyer’s knowledge of out-of-court proceedings is an advantage for their clients. This includes laws on mediation and arbitration, including some procedures used by third-party mediation or arbitration institutions.
Franchise dispute lawyers are also knowledgeable on the practical know-how's when negotiating with the other party to internally resolve disputes.
Terminate franchise agreements
Oftentimes, termination of agreements is related to disputes. As such, a franchise dispute lawyer may also be involved in terminating franchise agreements.
Whether the termination is due to the other party’s breach, or on the grounds allowed by the agreement, franchise dispute lawyers can help clients enforce their rights as provided by the agreement.
Enforce statutory remedies
Parties in a franchise agreement have rights and obligations under Canadian laws on franchises.
If a party violates its statutory obligations or the rights of others, the other party may sue them before the court.
For example, under provincial franchise laws, a disclosure document must be given by franchisors to prospective franchisees. This document will provide franchisees with relevant information that will help them decide whether to pursue an agreement with the franchisor.
If there’s been a breach of this obligation, or when there’s fraud or misrepresentation on the part of the franchisor, the franchisee may sue them in court.
While these claims may also be resolved out of court, a franchise dispute lawyer is there to direct clients on the right course of action to take.
How are franchise conflicts resolved?
Franchise dispute lawyers can advise clients on the different ways to resolve a franchise conflict. They can first exhaust the different methods of alternative dispute resolution (ADR). If any or all these methods fail, parties can then resort to litigation.
“The franchise dispute lawyer prepares demand or cease and desist letters, brings or defends claims, whether in court or before an arbitrator, and explores opportunities to resolve disputes by way of negotiation or mediation,” Dolman says.
In either case, a franchise dispute lawyer can advise on what is proper for a specific case and what is advantageous for their client.
ADR methods
A dispute resolution clause found in a franchise agreement may use either – or a combination – of the different methods of ADR. These methods are:
- negotiation
- mediation
- arbitration
Initially, a franchise dispute lawyer may contact the other party to negotiate the dispute's resolution. This is before any mediation, arbitration, or litigation may happen. The goal is to prevent the parties from undergoing these tedious and time-consuming processes.
If unsuccessful, a franchise dispute lawyer can review the franchise agreement for any mediation or arbitration clauses.
A mediation agreement or an arbitration agreement may also be a stand-alone contract between parties in a franchise agreement.
Regardless of its form – whether as part of the dispute resolution clause or as a stand-alone contract – both parties must consent to any of these methods.
If a party goes to court without using any of the ADR methods they have previously agreed to, the court will simply refer them back to their agreement.
Litigation
Parties fall back to litigation if the ADR methods fail, or if the parties are not bound by a dispute resolution clause or a separate contract.
Guided by their own franchise dispute lawyers, parties can ask for certain action to be taken, such as:
- specific performance: to enforce a particular provision in the contract (e.g. non-compete agreement) or obligation under Canadian franchise laws
- injunction: to prevent the other party from using its brand or trademark (i.e. infringement), which usually happens after the franchise agreement is terminated
- damages: to compensate the injured party because of the acts of the other party
Read more: How does a franchise agreement lawyer help their clients?
If you’re in need of a franchise dispute lawyer, reach out to the best franchise lawyers in Canada as ranked by Lexpert.