Planning Complaint Handling Before Franchising: How to Stop Your First Dispute Escalating

When you turn an existing business into a franchise, complaints that the owner once resolved personally become issues between independent businesses. Claims that training fell short of what was promised, or demands for compensation for supply delays, are difficult to handle through personal relationships alone. To build a healthy franchise community, establish a system for receiving complaints, checking facts and deciding on remedies before signing your first franchise agreement. The aim is not to eliminate complaints, but to prevent minor disagreements from becoming prolonged disputes.

1. Distinguish legal rights from internal procedures

Franchise dealings in South Korea are governed by the Fair Transactions in Franchise Business Act, commonly referred to as the Franchise Act. It regulates not only pre-contract obligations, such as registering and providing disclosure documents, but also the trading relationship between franchisors and franchisees. Your complaints procedure is therefore more than a customer service guide. It should be designed as an internal control that checks contractual commitments and identifies potential legal breaches early.

Where a franchisor breaches a contract or the law and causes loss intentionally or negligently, the franchisee may claim damages. Both franchisors and franchisees may also apply for dispute mediation through the Franchise Business Transaction Dispute Mediation Council at the Korea Fair Trade Mediation Agency (KOFAIR). An internal complaints channel must not replace or restrict access to these external remedies.

Make sure the agreement and franchisee guidance give consistent information on how to submit a complaint, which department handles it, the review process and how the outcome will be communicated. Avoid wording suggesting that franchisees cannot seek external mediation without first completing the internal procedure. Nor should you describe your own target response dates as statutory deadlines.

During preparation, classify the issues most likely to recur. These might include missed training, delivery errors, disputed charges and differing interpretations of operating guidelines. However, you must also accept complaints that do not fit an existing category. If a member of staff turns a complaint away because it is difficult to classify, the franchisee has to repeat the same explanation to several people, deepening their distrust.

2. Keep the complaints channel simple and decision-making responsibilities clear

A small franchisor does not need a large dedicated team. The first priorities are a single channel that creates a record, such as a central email address or submission form, and a named person responsible for managing it. Requests received by telephone or in person can be entered into the same form by a member of staff, who then asks the franchisee to confirm the record.

A practical complaints form should include:

• The date and outlet where the problem arose, and the relevant transaction or support service
• The franchisee’s account of events and what they understood the franchisor had promised
• Material needed to check the complaint, such as contract clauses, order records and messages
• The impact on trading and the risk of further loss or harm
• The franchisee’s preferred remedy and suitable times to contact them

Do not demand all supporting evidence at the outset. It is better to record the complaint first, then explain precisely which documents are needed. The acknowledgement should name the person handling the case and give a date for the next update. If a final decision needs more time, explain the delay and when the next update will follow, so that waiting does not become a fresh source of dissatisfaction.

It is also important to distinguish between the person receiving the complaint, the person checking the facts and the person authorised to approve payments. Even if one person performs several roles in a small franchise business, provide a review route so that they cannot close a complaint about their own conduct without oversight. You can also set criteria in advance for referring matters involving the head of the business to an external adviser.

Urgent action and decisions about liability should be handled separately. Where a supply interruption or safety issue could cause further harm, consider interim measures first. Record their purpose and scope, but avoid making support conditional on the franchisee withdrawing their complaint.

3. Separate allegations from established facts when developing a remedy

Review records should distinguish between ‘the franchisee’s account’, ‘the franchisor’s account’ and ‘facts established by evidence’. Recording something a case handler has heard as an established fact can undermine later decisions. A useful approach is to build a chronology first, linking the evidence to the promises made and actions taken at each stage.

For example, if a franchisee complains about inadequate opening support, avoid an abstract argument about whether the support was sufficient. Compare the support described in the agreement and guidance at the time with actual visit records, training attendance and responses to requests for additional help. Distinguish documents in place when the agreement was signed from operating standards introduced later. Current standards alone are not a sound basis for judging past performance.

For financial claims, examine separately whether the loss occurred, what caused it and how the amount was calculated. Avoid either accepting the franchisee’s entire claimed loss immediately or rejecting the whole claim because some evidence is missing. Separating established points from those requiring further checks allows discussion to begin with the elements that can be resolved.

A proposed remedy should specify not only the action to be taken, but also who will carry it out, the target completion date and how completion will be verified. For additional training, state what will be taught and to whom. For a billing correction, identify the transaction and the item to be amended. Open-ended phrases such as ‘further support’ can easily create new disagreements over interpretation.

When proposing a settlement involving payment or a waiver of rights, it is prudent to define the dispute and the scope of the settlement clearly and obtain legal review. Do not demand a blanket waiver covering other issues that have not yet been investigated. If no agreement is reached, do not record the franchisor’s proposal as a final settlement; retain an accurate record of the outstanding differences between the parties.

4. Prepare for external mediation and address recurring causes

A procedure has not necessarily failed simply because it does not produce an internal resolution. If there are substantial disagreements over key facts or the extent of liability, external dispute mediation may be worth considering. Mediation is not a stage for imposing the franchisor’s position, but a route through which both sides can explore a resolution based on the evidence.

When applying to KOFAIR’s Franchise Business Transaction Dispute Mediation Council, prepare the mediation application form, documents substantiating the grounds for the application and the facts, and any necessary supporting evidence. If a representative submits the application, a power of attorney is also required. Check the guidance current at the time of application for submission methods and any additional documents needed.

From the moment a complaint is received, the franchisor should organise the contract documents, relevant correspondence, transaction records, internal review findings and proposed remedies into a case file. Preserve unfavourable material as well as evidence supporting the franchisor’s position, so that the facts can be assessed properly. Restrict access to those who need it for their work, and do not share complaint details with unrelated franchisees or staff.

When closing a case, distinguish between ‘response completed’ and ‘action completed’. If you have promised to correct a charge but the account adjustment has not yet been made, the action is still outstanding. If the franchisee does not respond, do not automatically treat their silence as acceptance of the proposed remedy. Record the contact attempts and the current status instead.

Use accumulated records to improve systems before using them to assess individual performance. If the same explanation of training repeatedly causes disagreement, revise the guidance. If the same billing item causes problems, review how it is calculated and checked. Before recruiting your first franchisee, run a hypothetical complaint through the entire process, from receipt to closure. Identify where it stalls—whether over the case handler, evidence, approval authority or communication of the outcome—and address the gaps. That is the most practical place to start.