Franchise disputes are rarely surprising in hindsight. In most cases, the warning signs were there – unmet expectations, financial pressure, or a breakdown in communication between the franchisor and franchisee. The good news is that many disputes can be prevented, or at least contained, if both parties take a proactive approach from the outset.
The most common causes of franchise disputes are well recognised: disagreements over fees and operational requirements, financial underperformance of the franchised business, alleged breaches of the franchise agreement, and contested renewals or terminations. Often, these issues arise not from a lack of good faith by either party, but from misaligned expectations. As the ACCC has noted, if a franchise is underperforming, it does not always mean someone is at fault. For instance, changing consumer tastes, increased competition, or broader economic conditions can all play a role.
The Franchising Code of Conduct requires all franchise agreements to include a complaint handling process. This internal dispute resolution procedure is the first port of call when issues arise, and it should not be treated as a formality. A well-designed internal process will set out how disputes are formally notified, timelines for responding, steps for negotiation or escalation, and referral to mediation or other alternative dispute resolution if needed. If the internal process in your agreement meets or exceeds the standards set by the Code, parties will ordinarily be expected to use it first.
Beyond the formal procedures, practical steps can make a real difference. Regular communication, including performance reviews, transparent reporting, and open dialogue about operational challenges, helps both parties identify and address concerns before they escalate. It is also important to have trusted independent advisers, such as an accountant or business adviser, who you can turn to when things get difficult. Above all, every significant communication and decision should be documented in writing. Written records are not just good practice – they can be critical evidence if a dispute does arise.
Practical Takeaways
- Address issues early. Most disputes arise from misaligned expectations. Clear, honest communication from the outset, and at regular intervals, is the most effective prevention tool.
- Know your agreement. Familiarise yourself with the dispute resolution procedure in your franchise agreement, and ensure it meets the minimum standards required by the Code.
- Document everything. Keep written records of all material communications, decisions, and performance issues. Early intervention is always more cost-effective than litigation.
If you are concerned about the health of your franchise relationship, or want to ensure your internal dispute resolution procedures are compliant and set you up for the best chance of resolving issues early, the Franchising Team at Hitch can help. Early legal advice is often the most cost-effective investment you can make. Contact us before a disagreement becomes a dispute.