How to tackle franchise disputes (and avoid them in the first place)
This month, Partner and franchise and commercial dispute specialist Russell Ford spoke to elitefranchise magazine about why communication is key to reducing conflict between franchisors and franchisees.
“A failure of communication is at the heart of most disputes. This can occur at the outset when franchisors give information, or when franchisees set their earnings expectations and don’t understand the nature of the risk or the amount of work involved; later, it can involve changes to the model, inexperienced or high turnover of Business Development Managers (BDMs), franchisees failing to grow or getting comfortable, or an over-reliance on national account work – but a lack of communication both ways feeds that dispute.”
Most franchise disputes develop gradually. Problems rarely appear overnight. Instead, they build slowly, often disguised as operational friction or minor disagreements that grow into something far more serious.
Spotting problems before disputes escalate
Once relationships begin to deteriorate, the signals can be subtle – but meaningful. Ford suggests that franchisors who pay attention to early behavioural changes can sometimes prevent franchise disputes from escalating into litigation.
“There can be many clues to a disgruntled franchisee preparing to jump ship,” says Ford. “Reducing turnover reporting, a reluctance to attend meetings, and communication being spiky and always by email – there are many examples. Franchisors should regularly check Companies House filings for changes in directors or shareholdings, or new companies opening up. They should also check social media platforms and check in with their regular network suppliers to see if franchisees are setting up new accounts. Regular customer surveys are also a good idea. Very often, a franchisee ‘flipping the signs’ comes without warning. Spotting those signs and engaging with franchisees directly can help de-escalate the problem.”
The emphasis on observation and engagement reflects a broader reality of franchise operations. Systems and contracts matter, of course, but it is personal relationships which often determine whether issues can be resolved early or spiral into formal disputes.
Courts, contracts, and changing expectations
Over time, the legal environment surrounding franchise disputes has evolved – although not always in the way industry observers assume. Ford says perceptions about court attitudes towards franchising have shifted over the years – particularly following several prominent cases.
“Ten to fifteen years ago, there was a perception that courts were becoming more ‘franchisee-friendly’,” he says. “I don’t think that was necessarily true – it just happened that there were some high-profile misrepresentation cases coming to trial. They did not make new law, but showed that courts took a dim view of overselling practices and franchisors trying to rely on exclusion clauses in the contract. Since then, decisions have gone both ways. Franchisors have won cases about a right to decline renewal applications, but the courts clearly feel that overly long and onerous contracts alongside some naivety or inexperience amongst franchisees creates an ‘inequality of bargaining power’ which needs re-balancing.”
The legal landscape, then, is not necessarily shifting towards one side or the other. Instead, courts appear focused on fairness, governance, and transparency when franchise disputes reach litigation.
Non-compete clauses and enforcement reality
Few areas of franchise disputes generate as much tension as non-competition clauses. These provisions can become flashpoints when relationships break down and former franchisees attempt to re-enter the market on their own or with another company.
“As lawyers, we have long operated on the basis that one year, territory-based covenants against a similar or identical business are enforceable. The Drain Doctor case caused concern that they were not, and there was a bit of a knee-jerk reaction in watering them down. The reality is that, for most franchisors and their (ex-) franchisees, they remain enforceable. However, if the franchisee has barely started or not built up goodwill, or if the franchisor has financial problems, then it is best to avoid going down that route. In any event, there are other ways of dealing with the situation. Control of customer data is essential. Supporting neighbouring franchisees to work the territory and win back customers are alternatives.”
In short, enforcement strategies must reflect commercial realities as much as legal rights.
Mediation versus litigation in franchise disputes
When franchise disputes do escalate, the decision on whether to seek mediation or go for litigation becomes critical. Ford’s experience suggests that mediation frequently delivers more practical outcomes.
“In almost all cases, mediation is better. Franchisors have control over the outcome they want, they either get a deal or not, and it can often go beyond what a court can do in terms of commerciality. It is quicker and cheaper, and means you get back to running your business – rather than a litigation case – sooner. Sometimes, however, what is offered at mediation is not good enough – even to a franchisor willing to compromise. In those situations, litigation is the alternative. It can get you the public win you want, but be prepared to handle things if it doesn’t go your way.”
This balance between commercial resolution and legal vindication sits at the heart of many franchise disputes.
Protecting your brand during conflict
Franchise disputes rarely happen in isolation. Networks talk, franchisees compare experiences, and communication gaps can quickly widen if franchisors remain silent.
“Protecting your brand and systems is critical. Sometimes, the hard-working franchisees in your network want you to be tough on bad eggs who cause problems or leave. Your franchisees will be communicating with each other, and disgruntled franchisees will try to sow dissent through WhatsApp groups. In such circumstances, franchisor silence creates a void – so communicate with your franchisees: tell them what you are doing to protect the brand, and why.”
Early-stage decisions that lead to franchise disputes
Many franchise disputes have roots in early structural decisions made when networks are still growing. Ford points out several recurring mistakes that later become legal problems.
“The classics include granting territories that are too big, frequent use of side letters to change terms, and taking on people that you have an unsettled feeling about. Your gut reaction is usually right. Don’t sign up a bad candidate just to get their initial fee. You will spend more than that sorting the problem out later.”
Growth decisions, in other words, can carry long-term legal consequences.
Complexity, scale, and modern franchise disputes
As franchise systems expand across sectors and ownership structures evolve, the nature of franchise disputes also changes. Multi-unit operators and experienced franchisees bring different expectations and challenges.
“The courts view sophisticated franchisees or multi-unit, multi-brand operators very differently to naïve new starters. Those franchisees have different issues – it is rarely misrepresentation type cases; instead, it’s usually about margins being eroded, inadequate national marketing, or franchisors introducing new systems that are untested, expensive, or perceived not to add value. These operators may form associations – not as action groups spoiling for a fight, but as quasi-trade unions to negotiate with the franchisor and work for a shared goal of enhanced profitability.”
It shows the maturation of franchising as a business model, where disputes increasingly centre on performance, value, and strategic direction.
A multi-disciplinary approach to disputes
Addressing disputes often requires expertise beyond litigation alone – particularly when conflicts touch multiple parts of a business. Knights is able to deal with all legal issues franchisors face, and has a core team of franchise experts and relationships with expert lawyers in other areas who understand the franchise model.
“I think that helps franchisors facing challenges, and means the advice is highly focused on their commercial imperatives and comes from a place of real understanding of their business,” says Ford.
Future-proofing against franchise disputes
Looking ahead, Ford emphasises prevention over reaction. Strong agreements, clear expectations, and consistent communication remain central to avoiding future franchise disputes.
“Deal with the concept of good faith expressly, and in clear terms – otherwise, it enables a judge to imply terms which they will then find the franchisor has breached. Limit the length of the contract, and look to demonstrate fairness in some terms. Have a clear dispute resolution process that includes mediation.
“Ensure franchisees take legal advice on the contract – that makes a big difference when it comes to courts looking at equality of bargaining power. Regularly update your projections and disclosure document, and communicate with your franchisees – particularly with those where you sense a problem.”
Franchise disputes, as Ford’s experience suggests, are rarely unavoidable – but they don’t need to become explosive or expensive. More often, they are the result of communication gaps, structural decisions, and unresolved tensions that accumulate over time.
Fix those problems, and you can stay out of the courtroom.
This article originally appeared in Elite Franchise Magazine.
Please be advised that this is an update which we think may be of general interest to our wider client base. The insights are not intended to be exhaustive or targeted at specific sectors as such, and whilst we naturally take every care in putting our articles together, they should not be considered a substitute for obtaining proper legal advice on key issues which your business may face.