Building a franchise: plan for dispute resolution early

Opening an existing business to franchisees involves more than passing on successful processes. Disagreements also need a reliable route to resolution: what happens when a fee statement is disputed, promised support fails to materialise or standards are interpreted differently? A dispute resolution procedure established in advance helps protect relationships within the franchise network. It is no substitute for legal advice, but it can prevent every disagreement from turning into a fundamental challenge to the relationship.

1. Understand the legal framework

Germany has no dedicated franchise legislation, nor any franchise-specific requirement to register a franchise agreement or obtain government approval for it. Franchise relationships are governed primarily by the German Civil Code (BGB), the German Commercial Code (HGB), where applicable, and competition and intellectual property law. Pre-drafted contract terms are subject to the rules on standard terms and conditions in sections 305 to 310 of the BGB.

These rules also apply to dispute resolution clauses. A procedure cannot be considered balanced simply because both parties have signed up to it. Section 307 of the BGB, in particular, requires transparent provisions and protects against unreasonable disadvantage. A clause that effectively blocks legitimate claims by imposing excessive hurdles is therefore legally problematic.

The European Code of Ethics for Franchising provides guidance on fair conduct between franchise partners and is also a membership obligation for members of the German Franchise Association. However, it is not national franchise legislation and does not replace either the contract or statutory rights.

What this means when preparing your franchise: Have binding dispute resolution provisions reviewed by a lawyer. An offer of an internal discussion is different from mandatory mediation or an arbitration agreement that fundamentally changes access to the courts. Such mechanisms should not be added to a contract template without legal review.

2. Identify likely disputes from your own business experience

Start with the points of friction in your existing business, rather than trying to draft the longest possible clause. Where do queries, remedial work or complaints arise today? Disagreements with suppliers, site managers and business customers can be particularly revealing.

Apply these lessons to the future relationship between legally independent businesses. An internal instruction to employees cannot simply be repurposed as a way to resolve a dispute with a franchisee.

Draw up a brief overview of potential disputes, covering four points:

• Trigger: for example, a disputed fee statement or a delayed delivery.
• Basis for resolving the issue: such as a contract provision, statement, order or documented commitment to provide a service.
• Responsibility: the person or team with the authority to assess the facts and decide on a solution.
• Urgency: the consequences if resolution takes several days or longer.

Distinguish routine disagreements from urgent incidents. A dispute over how an invoice has been allocated needs a different process from a potential safety defect. For immediate risks, clearly designated contacts must be able to act straight away; the standard complaints process must not delay necessary protective measures.

Test this overview against specific cases in your own pilot operation. The aim is not to check whether everyone works without disagreement, but whether the available information and decision-making authority actually align.

3. Design a straightforward escalation procedure

A practical model can have three stages. The key is to give each stage a purpose, a responsible person and a clear response.

Stage one: initial fact-finding. The franchisee reports the issue through a designated channel, describing the problem, the relevant agreement and the desired solution. The responsible person or team acknowledges receipt and gives a realistic timeframe for handling it. Avoid lengthy forms that make it difficult even to report an issue.

Stage two: a decision-making discussion. If the matter remains unresolved, people with genuine decision-making authority discuss it. Record which facts are agreed, where positions differ and what solutions are available. If the franchisee’s usual support contact was involved in the dispute, someone else should lead the discussion wherever possible.

Stage three: neutral support. Where a dispute has reached an impasse, a jointly selected mediator may help. Mediation supports the parties in reaching their own agreement; it does not determine the dispute as a court would. Agree in advance how the mediator will be selected, how costs will be shared and how confidential information will be handled.

Make it explicit that internal discussions do not automatically pause statutory or contractual time limits. In particular, no one should assume that an ongoing complaint automatically suspends a limitation period. Timely access to legal advice must remain available for urgent cases and to preserve legal rights.

4. Align the procedure, the contract and day-to-day practice

Decide carefully where each provision belongs. Binding obligations and any agreed dispute resolution mechanisms should be included in the legally reviewed contract. Contact channels, responsibilities and practical forms can sit in a supplementary procedure document. This must not introduce additional legal hurdles through the back door.

Keep records of outcomes concise: the subject of the dispute, the agreed action, the person responsible and the completion date. Restrict access to those who need to handle the matter. Personal accusations and unnecessary personal data should not appear in a record visible across the network.

Analyse recurring causes without singling out individual franchisees. Frequent billing queries, for example, may point to unclear documentation rather than an unwillingness to co-operate. In this way, dispute handling becomes a source of learning for the franchise network.

Practical takeaway: Before your first franchisee starts trading, establish an accessible complaints channel, clear decision-making authority and a neutral next step. Test the process using a realistic dispute and have a lawyer review any binding clauses.