Franchise disputes: agree a resolution process in advance

When turning an established business into a franchise, it is not enough to describe how the relationship should work when things are going well. You also need a process for situations where a franchisee disputes an invoice or head office fails to deliver a promised service. Across a franchise network, a predictable approach to resolving disagreements helps protect both relationships and day-to-day operations. Put the rules in place before signing the first agreement, rather than waiting for the first conflict.

1. Distinguish between a query, a failure and a genuine dispute

Not every disagreement calls for a formal legal notice. A delayed response from the support team may be an operational error, whereas repeatedly refusing to provide an agreed service may amount to a breach of contract. Treating every situation with the same severity creates unnecessary tension. On the other hand, relying on informal phone calls may leave it unclear later who requested what.

Establish a simple set of categories:

• Operational query: a procedure is unclear and the person responsible provides an explanation.
• Notice of a failure: one party describes an unmet obligation and asks for it to be put right.
• Dispute: the parties disagree about an obligation, the facts or the proposed solution.
• Urgent situation: there is a risk of harm to customers, safety or either party’s rights, and the matter cannot wait for the normal process.

For each category, specify who should receive the report, how it should be submitted and what happens next. Franchisees and head office must have the same opportunity to report a problem. A process that addresses only the franchisee’s failings while ignoring the franchisor’s obligations undermines trust from the outset of negotiations.

2. Base the process on Czech law and clearly defined obligations

The Czech Republic has no specific franchise legislation. A franchise agreement is generally concluded as an innominate contract — one not specifically defined by statute — under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. Disagreements are governed primarily by its general rules on contractual obligations, late performance, damages and contractual penalties. Depending on the circumstances, other legislation may also apply, including rules on competition, consumer protection or intellectual property.

The practical implication is that simply calling a document a franchise agreement does not provide a ready-made dispute resolution mechanism. You need to agree who is responsible for each obligation, when it must be fulfilled and how any failure will be addressed. Internal rules cannot override mandatory legal obligations towards customers or public authorities.

The European Code of Ethics for Franchising is a self-regulatory document, not Czech law. Its relevance to a particular relationship may arise from the membership rules of the relevant association or from a contractual commitment. It does not, however, replace legal review of the agreement or automatically guarantee the validity of individual provisions.

When drafting the agreement, ask a lawyer to review the relationship between contractual penalties and damages. The Civil Code sets a default rule on claiming both, which may differ from what a business owner expects. A court may also reduce an excessively high contractual penalty at the debtor’s request. Penalties should therefore not be the default response to every failing.

3. Introduce written notices and verifiable remedial action

A problem report should be concise, factual and supported by evidence. Prepare a form that records the date, a description of the incident, the contractual obligation concerned, the available supporting material and the requested solution. Instead of a general claim that “support is not working”, you will have a specific record of an outstanding request and its impact.

The process can then follow four steps:

1. The recipient acknowledges receipt and appoints someone to handle the matter.
2. Both parties provide any further facts and distinguish agreed points from disputed ones.
3. They agree on remedial action and a reasonable deadline, or determine these in accordance with the contract.
4. They verify the outcome and record in writing either the closure of the matter or the next steps.

Tailor deadlines to the seriousness of the issue and what can realistically be done to resolve it. Correcting an accounting document requires a different timescale from fixing a technical fault. A single deadline for every situation is often either unnecessarily long or impossible to meet.

For example, when an invoice for support services is disputed, first separate the question of whether the service was ordered from whether it was properly delivered. Finding the order and the record of delivery may resolve the dispute without penalties. Raising an objection does not, in itself, automatically extend the payment deadline; any extension must have a legal or contractual basis.

4. Set out a route from negotiation to independent resolution

If operational staff cannot reach agreement, refer the matter to designated management representatives. The aim is not to repeat the same discussion, but to assess the evidence, the implications and acceptable options for resolving the issue. Keep a brief written record of the meeting, including any points that remain unresolved.

Another option is mediation under Act No. 202/2012 Coll., on Mediation, conducted by a registered mediator. The mediator does not decide the dispute; they help the parties reach an agreement. The method of selecting the mediator and allocating the costs can be agreed in advance. A mediated settlement is not automatically enforceable in its own right.

Internal negotiations must not prevent either party from seeking timely legal protection. Nor should you assume that a routine exchange of emails automatically stops the limitation period from running. For urgent or high-value disputes, involve a lawyer early and check the options for seeking protection through the courts.

Practical takeaway: Before taking on your first franchisee, test the process using a hypothetical disagreement. If it is unclear whom to contact, what evidence to provide or who decides the next step, the rules still need work.