Franchise agreements: planning how to resolve disputes

Turning your business into a franchise means building a community of entrepreneurs whose interests will not always align. A disagreement over an invoice, a delivery or a service should not immediately become a legal dispute. Before signing your first agreements, establish a dispute resolution procedure: it will help you address problems before relationships deteriorate.

1. Define the legal framework without promising a conflict-free relationship

In France, franchise agreements are not governed by a single statutory framework covering the entire relationship. They are subject, in particular, to general contract law, commercial law and competition law. The obligations set out in the agreement therefore provide the starting point for assessing each party’s commitments.

Article 1104 of the French Civil Code requires contracts to be negotiated, formed and performed in good faith. This requirement applies to both parties: a complaints procedure must not be used to conceal a breach or artificially delay its resolution.

Pre-contractual disclosure is subject to specific rules. Article L. 330-3 of the French Commercial Code, introduced by the Doubin Law of 31 December 1989, applies where a business makes a trade name, trade mark or trading identity available while requiring an exclusive or near-exclusive commitment. In such cases, the pre-contractual disclosure document and draft agreement must be provided at least twenty days before signing or before any payment required ahead of signing. Article R. 330-1 specifies the information to be supplied.

Set out your dispute resolution arrangements in the draft agreement, rather than in a procedure the franchisee only discovers after opening. Prospective franchisees should be able to understand the steps involved and the potential costs of a disagreement.

2. Establish a simple complaints process with a clear record

In a business run directly by its founder, a phone call is often enough to resolve a problem. With several independent entrepreneurs involved, that approach becomes unreliable: verbal commitments are forgotten, and each person remembers the conversation differently.

Create a clearly identified contact point for complaints. A dedicated email address and a named person responsible may be enough at the outset. Also appoint an alternative contact for cases where the person normally handling complaints is themselves involved in the dispute.

Ask for a factual account covering:

• the contractual commitment or service at issue;
• the relevant dates and supporting documents;
• the practical consequences for the business;
• the desired solution.

Treat acknowledgement of receipt, review of the complaint and a reasoned response as separate stages. Set realistic internal deadlines without presenting them as statutory time limits. A breakdown that prevents the business from operating requires a different response from a non-urgent accounting query.

Keep a shared record accessible only to those concerned. Recording communications is about solving the problem, not routinely building a case against the franchisee.

3. Provide a workable route to an amicable resolution

The first stage might be a discussion at operational level, followed, if necessary, by a discussion between senior managers. For each stage, specify who is involved, how the request is submitted and when the dispute moves to the next level.

If these discussions fail, mediation can help the parties seek an agreement with the assistance of an impartial third party. Unlike a judge, the mediator does not decide the dispute: the parties remain free to reach an agreement or not.

A useful clause should specify, in particular:

• the disputes it covers;
• how the mediator is appointed;
• how costs are shared;
• the time allowed to attempt a resolution;
• how the process interacts with court proceedings.

Have the wording legally reviewed. A clause requiring prior conciliation may affect the admissibility of court proceedings brought without completing that step. It should also be carefully drafted to preserve access to any necessary urgent or protective measures.

Mediation between a franchisor and a franchisee should not be confused with consumer mediation, which is intended for disputes between businesses and consumers. Arbitration, in which an arbitrator is appointed to decide the dispute, warrants a separate assessment of its costs and benefits before it is included in the agreement.

4. Record the solution formally and address the cause

When an agreement begins to take shape, do not leave it at a phone call. Record the agreed actions, who is responsible for them, the deadlines and how completion will be checked. If the solution changes contractual obligations, formalise it in an appropriate document reviewed by a legal adviser.

Avoid hastily drafted blanket waivers. An agreement intended to settle a dispute definitively may constitute a formal settlement under French law and requires precise drafting.

Finally, examine what caused the disagreement: an unclear invoice, an ambiguous commercial commitment or poorly allocated responsibilities. Addressing that cause strengthens the whole franchise network without disclosing confidential information about the case.

Key takeaway: before signing your first franchise agreement, prepare a complaints process, an amicable resolution stage and a method for formally recording agreements. Have them checked for consistency with the contract: a clear procedure protects the relationship better than a long list of penalties.