Managing franchise disputes: rules to put in place before the first agreement

When turning an established business into a franchise network, it is easy to plan for successful collaboration and put off awkward questions. Yet a disputed invoice, missing support or a commitment interpreted differently can test the relationship even with your first franchise partner. A dispute resolution procedure established before launch is not a sign of mistrust: it gives both parties a predictable way to resolve their differences, ideally without disrupting day-to-day operations.

1. Distinguish operational problems from contractual disputes

Not every expression of dissatisfaction is a legal dispute. A late response to a query is usually an administrative problem; repeatedly failing to provide support promised in the agreement may amount to a breach of contract. If every issue goes straight to a lawyer, the relationship becomes expensive and inflexible. But if every complaint remains an informal conversation, recurring problems can pile up without consequences.

The Hungarian Franchise Association’s definition is based on close, ongoing cooperation between legally and financially independent businesses. This has a practical implication: the franchisor cannot treat a partner’s objection as merely an employee grievance. Two independent businesses need to establish what they agreed to, what happened and how the situation can be put right.

Before launch, create three categories of issues:

• Operational issue: an isolated problem that the relevant member of staff can resolve.
• Written partner complaint: a recurring problem, or one causing material disadvantage, requiring a documented response.
• Contractual dispute: a disagreement over a right, a payment obligation or the fulfilment of a commitment.

Assign a responsible person, a target response time and an escalation route to each category. These are your own organisational commitments, not general statutory deadlines for franchises. Handle safety or data protection incidents requiring immediate action separately: they cannot wait for the usual discussion process.

2. Build a short, well-documented resolution process

A good procedure starts with a clear way to report an issue. Designate a shared email address or case-management platform that someone will monitor even when the usual contact is absent. Direct messages can be useful, but they should not be the only evidence that a significant concern has been received.

Ask the person raising the issue to provide a brief account of the facts, the period concerned, a reference to the relevant commitment, any available documents and the remedy sought. Do not demand legal terminology. A partner simply needs to be able to explain clearly, for example, which service they did not receive and what action they are requesting as a result.

The initial response should come from the responsible person familiar with the matter. If no agreement is reached, escalate to a management-level discussion involving someone authorised to make decisions on each side. Wherever possible, the complaint should not be investigated solely by the person whose work is being challenged.

At the end of every substantive discussion, prepare a brief summary recording:

• which facts both parties accept;
• what remains disputed;
• what action each person undertakes to take;
• when and how the outcome will be checked.

For example, where a service fee is disputed, first compare the contractual terms, service delivery records and invoice. The outcome may be to provide the missing service, adjust the billing or reject the complaint with reasons. The aim is not to uphold every complaint at all costs, but to reach a decision that can be verified.

3. Align the agreement with Hungary’s legal framework

Hungary has no separate, comprehensive franchise act, but franchise relationships are not unregulated. Act V of 2013 on the Civil Code expressly recognises franchise agreements. General contract rules also apply, including provisions on cooperation, the provision of information, performance and breach of contract.

There is no general requirement to register a franchise network in a dedicated franchise register, nor is there a standalone statutory franchise disclosure regime. Nevertheless, providing information before the agreement is signed and avoiding misleading statements remain important legal requirements. The Hungarian Franchise Association’s recommended period of at least fourteen days to study the agreement is professional guidance, not a general statutory waiting period.

Have a Hungarian lawyer draft the dispute resolution clause. It should cover how notices are given, how delivery can be evidenced, the negotiation process and the arrangements for bringing claims before the courts. The negotiation stage should not prevent either party from seeking urgent legal protection. Nor should you assume that a complaint or negotiations will, by themselves, necessarily stop the limitation period from running.

Mediation is a separate option, governed by Act LV of 2002 on Mediation. A mediator does not decide the case as a judge would, but helps the parties reach an agreement. The enforceability of any resulting settlement and the appropriate form in which to document it need to be assessed separately. Arbitration is a different procedure; its costs and legal consequences should also be assessed before including an arbitration clause.

4. Test the process before taking on your first partner

Test the completed procedure against hypothetical cases. What happens if a partner disputes a fee, but head office considers that all promised services have been delivered? Who gathers the evidence? Who can authorise an adjustment? Who responds if the relevant manager is on holiday?

Consider the reverse situation too: the franchisor challenges the partner’s performance, and the partner disputes the facts. The same standards of documentation should protect both sides. Agree on arrangements for continuing operations while discussions are under way; ad hoc suspension of access or arbitrary withholding of payments should not be the default response.

Periodically review closed cases for recurring causes. Several similar complaints may point to imprecise commitments, insufficient capacity or confusing billing. Share the lessons with the network, not the affected partner’s confidential information.

Practical takeaway: before signing the first agreement, have a one-page dispute resolution process, a designated person responsible and a legally reviewed clause in place. Good rules do not eliminate disagreements; they make them manageable.