Franchise Mediation

International Franchise Attorney

Once a franchise relationship is made official by contract, unanticipated events can lead to disputes. that said, unlike disputes that arise when franchisors and franchisees are in the same country, a dispute involving two different legal systems, as in international franchise law, can be difficult and costly for all parties.

Mediation is a form of alternative dispute resolution (ADR), a way of resolving disputes. Mediation can help you solve a dispute without litigation. Most franchisors don’t want to be caught up in the foreign court system, and mediation can help address that.

We are international franchise attorneys, Mario L Herman and Gregory O Herman. For many years, Mario has assisted foreign-based franchisees who seek an efficient way to resolve their problems with their franchisors. Mediation may be the solution. Contact us to discuss your situation.

What Is Mediation?

Mediation is a well-recognized and effective alternative dispute resolution method, which can be used both domestically and internationally. During this process, a certified mediator will facilitate (or mediate) discussions between the two parties. While the mediator may suggest a possible solution, the final decision will be made by the franchisee and the franchisor.

The benefits of mediation are numerous:

Parties have control over the final outcome
Franchise mediation is less costly than litigation
Resolving franchise agreement disputes through mediation is usually much faster than going to court
Franchise mediation is less adversarial and preserves business relationships
The discussions and any resulting settlement stay private, unlike the public record of a lawsuit.
The parties can agree to creative solutions a court could not order, such as revised territory, a payment plan, or a negotiated exit.
Nothing is binding until both sides sign a settlement, you can walk away and pursue other options if mediation does not resolve the dispute.

If you are a foreign-based franchisee in an existing system and you are facing problems with your franchisor, contact us to discuss the possibility of mediation.

The Franchise Mediation Process

Mediation is less formal than court or arbitration, but it still follows a recognizable path:

Agree to mediate. Many franchise agreements require mediation before a lawsuit is allowed, or the parties can agree to it voluntarily.
Choose a mediator. The parties select a neutral mediator, often from a provider such as the American Arbitration Association or JAMS, or a private mediator experienced in franchise disputes.
Exchange information and prepare. Each side gives the mediator a summary of the dispute and the key documents, and works out its goals and positions.
Attend the mediation session. The mediator meets with both sides, together and separately, to explore each party’s interests and look for common ground. Sessions can last a few hours or a few days.
Reach a settlement, or not. If the parties agree, the terms are written down. If they do not, they remain free to pursue arbitration or litigation.
Sign the settlement agreement. Once signed, the settlement becomes a binding contract that both sides must honor.

How to Prepare for Mediation

Good preparation makes mediation far more productive. Before the session, you should:

Know your goals. Decide what outcome you want and what you are willing to accept, including your best and worst realistic results.
Gather your documents. Have the franchise agreement, the FDD, relevant correspondence, and any financial records organized and ready.
Understand your agreement. Know what the contract says about the dispute, including any mediation or arbitration clause and choice-of-law terms.
Bring a decision-maker. Make sure whoever attends has the authority to settle, so the process is not stalled.
Come ready to compromise. Mediation works best when both sides arrive willing to give as well as take.

How to Choose a Mediator

The right mediator can make the difference between a resolution and a standoff. Look for:

Relevant experience. A mediator who understands franchise and commercial disputes will grasp the issues quickly.
Genuine neutrality. The mediator must be impartial and acceptable to both sides.
Recognized credentials. Many effective mediators sit on the rosters of established providers such as the AAA or JAMS, or are experienced attorneys and retired judges.
A suitable style. Some mediators simply facilitate discussion, while others will evaluate the merits and suggest outcomes, so choose the approach that fits your dispute.
Reasonable cost. Mediators are usually paid by the hour, so confirm the rate and how it will be shared before you begin.

Mediation Settlement Terms

If mediation succeeds, the outcome is a written settlement agreement. Because the mediator does not impose a decision, the terms are whatever the parties agree to, and they commonly address:

Payment. Any money to be paid, by whom, and on what schedule.
Release of claims. A statement that the dispute is resolved and the parties will not sue over the same issues.
Ongoing terms. Any changes to the franchise relationship going forward, such as adjusted obligations, territory, or an agreed exit.
Confidentiality. Whether the terms of the settlement must be kept private.
Dismissal. If a lawsuit or arbitration is already pending, how and when it will be dismissed.

Once both sides sign, the settlement becomes a binding and enforceable contract. If a party later fails to honor it, the other can go to court to enforce the agreement.

If you are a franchisee weighing mediation to resolve a dispute with your franchisor, we can help you decide whether it is the right path and represent you through the process. Contact us to discuss your situation.