Franchise agreement disputes: agree a resolution process

When you turn your existing business into a franchise network, your own decisions no longer settle every day-to-day issue. You are bringing together independent businesses that may interpret their agreed obligations differently. That is why your first franchise agreement should include a clear process for resolving disagreements. The aim is not to prepare for a breakdown in relations, but to help you continue working together even when views differ.

1. Identify where interpretations may differ

Within your own business, an unclear task can often be resolved by talking to the employee concerned. In a franchise network, a similar situation may involve a contractual obligation between two businesses: what was promised, who is responsible for delivering it, and what happens if delivery is delayed? The franchisee bears the risks of running their own business, and a shared network name does not change the businesses’ separate status.

Review the proposed working relationship using typical situations where things do not go to plan. A franchisee might, for example, feel they have not received the advice promised, while the franchisor considers the matter already addressed. A disagreement might also concern the basis for an invoice or whether an agreed task was completed on time.

As part of your preparations, draw up a simple table recording:

• the potential disagreement and the relevant contractual clause
• the documents or events that could help clarify the situation
• each party’s designated contact
• the first step towards resolving the matter.

This is not a list of risks to hold against the franchisee. It is a test of whether both parties’ obligations are sufficiently clear. If the draft agreement does not provide a shared answer to an everyday question, resolve the ambiguity before signing.

2. Build the process around Finland’s legal framework

Finland has no separate franchise law, no compulsory registration of franchise agreements and no specific statutory pre-contractual disclosure procedure for franchising. This does not mean that franchise agreements or their negotiation are unregulated.

Key general legislation includes the Contracts Act, the Unfair Business Practices Act, the Competition Act and the Trademarks Act. The Contracts Act is relevant, for example, to the validity of an agreement and the adjustment of unreasonable terms. The Unfair Business Practices Act covers matters such as conduct contrary to good business practice and misleading statements. The Competition Act and applicable EU competition rules restrict the anti-competitive terms businesses may agree on. The Trademarks Act, in turn, concerns legal protection for the shared brand.

The Finnish Franchising Association’s Code of Ethics is a form of self-regulation, not legislation or prior approval by a public authority. The association’s members undertake to comply with it. If the agreement refers to the Code of Ethics, make the reference precise and have its contractual implications reviewed.

Do not assume that a general reference to ethical conduct will determine how disagreements are handled. The agreement needs separate governing law and dispute resolution clauses. For a domestic arrangement between businesses operating in Finland, choosing Finnish law is a natural starting point, but the provisions as a whole should be reviewed by a lawyer familiar with franchise agreements.

3. Set out a practical negotiation and mediation process

A good process starts with written notice, not an immediate threat of legal proceedings. Agree where the notice should be sent and who is responsible for receiving it. The notice should describe what happened, the issue in dispute, any contractual basis and the proposed resolution. The recipient’s job is to investigate the matter, not simply acknowledge receipt.

Set realistic deadlines for handling the issue. Distinguish between acknowledging receipt, providing a substantive response and arranging negotiations. Avoid deadlines that a small organisation cannot meet during holidays or when a key person is absent. At the same time, make sure the matter cannot remain pending indefinitely.

A workable sequence might be:

1. The designated contacts compile an account of events and the relevant documents.
2. Representatives of both businesses with decision-making authority negotiate a solution.
3. The parties use a jointly selected independent mediator, if they agree to do so.
4. Any unresolved matter proceeds to the dispute resolution procedure specified in the agreement.

Record the outcome of the negotiations: what was agreed, who will do what, and when implementation will be checked. If no settlement is reached, it is also worth identifying the outstanding issues. An independent mediator helps the parties find a solution but does not generally impose one on them.

Also agree how business will continue while the matter is being addressed. For example, undisputed obligations can be kept separate from the issue in dispute. However, the negotiation process must not prevent either party from seeking necessary urgent legal protection. Nor should you assume that negotiations alone preserve all deadlines for bringing claims or prevent claims from becoming time-barred.

4. Consider costs when choosing a dispute resolution method

The final stage may involve the ordinary courts or an agreed arbitration procedure. Do not copy a clause from a larger network’s agreement without assessing whether it suits the size of your own franchise network and your franchisees’ financial resources.

Court proceedings are generally public, and appeals are governed by procedural rules. Arbitration is a private process in which the parties may incur arbitrators’ fees and other procedural costs in addition to their own legal fees. An arbitral award cannot be appealed in the same way as a court judgment. However, the private nature of arbitration should not be taken to mean that an automatic, comprehensive duty of confidentiality applies.

Ask a lawyer to explain the practical consequences of the clause for both businesses. In particular, check which court has jurisdiction or which arbitration rules apply, the location and language of the proceedings, and how costs arise. Also assess whether the procedure is proportionate to the likely scale of disputes.

Practical checklist: test the resolution process with a hypothetical billing dispute before signing your first agreement. If both parties know whom to notify, when negotiations will take place and how an unresolved matter will proceed, you have built a workable safety net for the relationship.