Franchise Arbitration Disputes

Franchisee Arbitration Lawyer

Arbitration is widely recognized in franchise law as the preferred form of alternative dispute resolution (ADR). There are a variety of issues and disputes that can lead to the need for representation in arbitration. As an experienced franchisee arbitration lawyer, We can represent your rights and the rights of your franchise.

Mario Herman has over thirty years of experience handling franchise issues for franchisees, both domestically and internationally. To learn more about franchisee arbitration and to arrange a consultation, contact us online, at Mario L Herman and Gregory O Herman.

What is Arbitration?

Typically, a franchise agreement calls for arbitration in the event of a franchise agreement dispute. Franchise arbitration has become a major alternative dispute resolution method to traditional franchise litigation. It is now a well-recognized aspect of franchise law for resolving contract issues.

During the arbitration process, an appointed arbitrator (usually a third-party attorney or retired judge) will listen to both sides of the dispute. He or she will then serve as the arbitrator and issue a legally binding decision. Arbitration allows franchisees to settle their matters quickly and outside of the public eye. In addition, franchise dispute arbitration is usually less costly than traditional court.

Experienced Arbitration Representation

Often, the best interests of a franchisee are not the franchisor’s primary motive. Franchisees can feel taken advantage of — or even outright lied to — with respect to the projected earnings of a franchise. These situations can fuel disputes that must be resolved through franchisor-franchisee arbitration.

Mario Herman and Gregory Herman offer arbitration representation in franchise and contract disputes that include the following:

Franchise agreements
Non-compete agreements
False earnings claims
Breach of contract
Trademark violations
Quality control
Territorial encroachment
Disputes regarding future royalties

The Federal Trade Commission (FTC) may regulate some of these disputes. We have experience with FTC matters, including fraud and other deceptive business practices.

Dealing With Issues Involved in Your Type of Franchise

As a franchisee, if you feel an agreement has been dishonored or a franchisor has breached the terms of your contract, you have options. We have represented franchise owners with businesses such as:

Arbitration vs. Litigation vs. Mediation

Franchise disputes can be resolved in three main ways, and most franchise agreements point you toward one of them. Knowing the differences helps you understand what to expect:

Arbitration — a private process in which a neutral arbitrator, or a panel, hears both sides and issues a binding decision. It resembles a streamlined trial, with evidence and witnesses, but it is confidential and can be appealed only on narrow grounds.
Litigation — a lawsuit filed in court. It is public, follows formal rules of procedure and evidence, can take years, and usually costs the most, but it preserves a full right to appeal and a jury unless waived.
Mediation — a guided negotiation led by a neutral mediator who helps the parties reach their own agreement. The mediator does not decide anything, so mediation resolves a dispute only if both sides agree to settle. It is usually the fastest and least expensive option.

Many franchise agreements require mediation before a lawsuit is allowed, so your first step is always to read the dispute-resolution clause in your own agreement.

The Franchise Arbitration Process

When a franchise dispute goes to arbitration, the process usually follows the same broad path, though the details depend on the rules named in your agreement and the provider, such as the American Arbitration Association or JAMS:

Review the arbitration clause. It names the provider, the governing rules, the location, and the number of arbitrators.
File a demand for arbitration. The initiating party submits a demand to the provider and pays the filing fee.
Select the arbitrator. The parties choose a neutral arbitrator, or a panel, from the provider’s roster.
Attend a preliminary hearing. The arbitrator sets a schedule and the scope of any information exchange.
Exchange information. Discovery in arbitration is usually narrower and faster than discovery in court.
Present your case at the hearing. Each side offers documents, evidence, and witnesses to the arbitrator.
Receive the award. The arbitrator issues a written, legally binding decision.
Confirm and enforce the award. The prevailing party can ask a court to confirm the award and enforce it if necessary.

Cost of Franchise Arbitration

Franchise arbitration is a commercial proceeding, so it costs more than a small consumer claim. The main components are the provider’s filing and administrative fees, the arbitrator’s compensation, and your attorney’s fees. Arbitrators are usually paid by the hour, often several hundred dollars per hour, and a three-arbitrator panel multiplies that cost. Once you add attorney fees and hearing expenses, a contested franchise arbitration can be a costly process. Even so, it is frequently faster and less expensive than litigation. Your franchise agreement often controls who pays these costs and where the arbitration takes place, which is one more reason to have the clause reviewed early. We offer a free consultation to help you weigh the likely cost against what is at stake.

Pros and Cons of Arbitration

Arbitration has real advantages, but it is not always in the franchisee’s favor. It helps to weigh both sides.

Potential advantages

Speed — arbitration is often resolved faster than litigation.
Expertise — you can choose an arbitrator who already understands franchise and contract law.
Finality — the binding award ends the matter, with only narrow grounds for appeal.
Cost — it is frequently, though not always, less expensive than litigation.
Privacy — the dispute and the outcome stay confidential, unlike a public court case.

Potential drawbacks

Limited appeal — if the arbitrator gets it wrong, there is very little you can do about it.
Fees — filing and arbitrator fees can add up quickly, especially with a panel.
Venue — the agreement may set the location in the franchisor’s favor.
Limited discovery — you may get less access to the franchisor’s documents than you would in court.
Class-action waivers — many franchise agreements bar franchisees from joining together, forcing each to arbitrate alone.

When Should a Franchisee Choose Arbitration?

For many franchisees, arbitration is not really a choice. Most franchise agreements contain a mandatory arbitration clause, which means you agreed to arbitrate when you signed. The first thing to check is whether your agreement requires it and whether any exceptions apply. Where you do have a say, arbitration tends to make sense when you value privacy and a faster resolution, and when you would benefit from an arbitrator who already understands franchising. It is worth thinking twice when your claim would be stronger as part of a group, when the agreement forces you into a distant or franchisor-friendly forum, or when the ability to appeal matters to you. An experienced franchisee arbitration lawyer can read your clause and tell you what options you actually have.

Frequently Asked Questions

Is arbitration required in franchise disputes?

Often, yes. Most franchise agreements include a mandatory arbitration clause that requires you to arbitrate rather than go into litigation. The controlling question is what your specific agreement says, so that clause is always the place to start.

Is a franchise arbitration decision final?

Usually. An arbitration award is binding and can be challenged only on narrow grounds, such as fraud, bias, or serious arbitrator misconduct. You generally cannot appeal simply because you disagree with the outcome.

How long does franchise arbitration take?

It varies with the complexity of the dispute, but arbitration is generally faster than court. Many cases move from the initial demand to a final award in a matter of several months to a little over a year.

Who pays for franchise arbitration?

It depends on the agreement and the provider’s rules. Filing and arbitrator fees may be split between the parties, and the agreement or the final award can shift some costs. Each side usually pays its own attorney unless a fee-shifting clause applies.

Can a franchisee get out of a mandatory arbitration clause?

Sometimes, but it is difficult. Courts generally enforce these clauses. There are limited exceptions, and an attorney can assess whether any of them apply to your situation before you commit to a path.

Is arbitration better than court for franchisees?

It depends on the dispute. Arbitration is private, faster, and often less expensive, but it limits appeals and discovery and can favor the franchisor when the agreement is one-sided. The right choice turns on the facts of your case.

Contact Mario L Herman and Gregory O Herman — Franchise Agreements Dispute Resolution Attorneys

We strive to resolve disputes in a manner that causes minimal interruptions to your business. Contact us online.