September 15, 1997Mediation panel keeps franchise cases out of court
John W. Frees Business First
More franchise disputes may be resolved through mediation, rather than litigation, thanks to the success of a new program sponsored by franchising companies.
The National Franchise Mediation Program brings franchisees and franchisers together to resolve disputes over fees and royalties, territory encroachments and other violations of franchise agreements. It has been managed by the CPR Institute for Dispute Resolution in New York since 1994, said Barbara Reno, vice president of the institute.
The advantages are many. It saves time and money. It can preserve the business relationship that otherwise might be sundered through protracted litigation and it provides creative, business-driven results that a court of law may not provide, she said. It's also private.
The mediator can meet separately with the parties or together to try and find common ground, so both parties can view the result as "win-win." The mediator offers legal opinions, acts as a sounding board to both parties, and helps draft the settlement agreement. Having a mediator present also reduces emotions, which can lead to fewer misunderstandings during negotiations.
"It's working very well," she said. Of 101 disputes heard in the last three years, 61 were resolved by mediation, six were not and the rest are still pending, she said.
The program began with 10 franchisers and now has expanded to nearly 50, including Arby's, Wendy's, McDonald's, Jiffy Lube, Pizza Hut and KFC. It has saved thousands of dollars in legal fees and lots of time -- civil disputes can take years to move through the court system.
Territorial disputes top the list of issues to be resolved, she said, followed by "miscellaneous violations" of franchise agreements. Other disputes center on underreporting of sales and other financial violations, or termination or non-renewal of contracts.
"A lot of franchiser action against franchisees has to do with failure to pay fees," said Calvin Haskell Jr., a consultant with Franchise Solutions in New Hampshire.
While many contracts call for some form of mediation, it's often required to be in the home state of the franchiser. "If you're a poor franchisee in Maine and the franchiser is in California, you have to go to California," he said.
Not so with the CPR Institute program, Reno pointed out. It has panels of mediators all over the country and the object is to meet as close to the franchisee as possible.
The mediation program may be expanded through a partnership with the government, reported Entrepreneur magazine. The Federal Trade Commission may allow the program to deal with franchisers who violate minor or technical aspects of the FTC's Franchise Rule.
If adopted, it would allow an alternative to the FTC's lengthy investigations and possible penalties. Under the proposal, the violations would be mediated within 60 days, guided by a neutral third party. It would follow the same model as does the national mediation program.