Handling disputes in your first franchise agreement

A disputed invoice, an unfulfilled promise or disagreement over working practices: conflicts can arise even in a carefully developed franchise system. If you are turning your existing business into a franchise, decide in advance how you will handle them. A franchise network needs not only shared ambitions, but also a fair process when interests clash. That process starts with your first franchise agreement.

1. Distinguish between a reported issue and a dispute

Not every complaint needs to go straight to a solicitor. Equally, a serious concern should not get stuck with the member of staff who normally handles operational queries. Distinguish between a routine issue, a formal complaint and a dispute over rights or obligations.

A fault in the ordering system starts as an operational issue. If it keeps recurring and questions arise about promised support, a formal complaint may be needed. If either party then disputes liability or payment, it may become a legal dispute.

Set out in advance:

• who a franchisee should submit a formal complaint to;
• what information is needed to assess the complaint;
• who has authority to agree a solution on behalf of the franchisor;
• when the process moves to the next stage.

As the founder, are you both the point of contact and the decision-maker? If so, appoint an alternative contact for situations where the complaint concerns your own conduct. This need not involve an elaborate complaints committee. An independent facilitator can help prevent a personal disagreement from dominating the entire relationship.

2. Build a short, practical escalation process

Include the main procedure in the franchise agreement. Contact details and practical instructions can be set out in the operations manual. Make sure that changes to the manual do not inadvertently restrict the legal routes available for resolving a dispute.

A workable process might consist of four steps:

1. Written complaint. The party describes what happened, which commitment they believe has not been honoured and what solution they propose.
2. Substantive response. The other party responds to the facts, stating what they accept and what they dispute.
3. Discussion between authorised representatives. Both parties explore a solution and record any agreement in writing.
4. External resolution. If no solution is reached, the agreed route follows, such as mediation or proceedings before the court with jurisdiction.

Choose realistic response deadlines and identify them as contractual commitments, not statutory time limits. Agree what happens if someone fails to respond. A procedure with no next step can actually prolong a conflict.

Allow for urgent action. Where, for example, there is an immediate risk to customer safety or a threat of confidential information being lost, either party must be able to seek immediate legal protection if necessary. Have a legal adviser draft this exception clearly.

3. Align the procedure with the Dutch Franchise Act

The Dutch Franchise Act (Wet franchise) has applied in the Netherlands since 1 January 2021 and is incorporated into Book 7 of the Dutch Civil Code. It includes rules on disclosure, assistance and support, consultation and certain changes to the franchise system. Franchisors and franchisees must also conduct themselves as good franchisors and good franchisees respectively.

The Act does not impose a general requirement to use mediation. You can, however, agree a dispute resolution procedure. That procedure must not undermine statutory protections. The statutory franchise rules cannot be departed from to the detriment of a franchisee established in the Netherlands.

Include the dispute resolution procedure in the draft agreement you provide in advance. The legally required information must be made available in good time, with a statutory period of at least four weeks before the agreement is concluded. Prospective franchisees must also have the opportunity to seek advice on the implications of the dispute resolution procedure.

Do not automatically choose arbitration simply because it sounds businesslike. Arbitration means that arbitrators, rather than an ordinary court, decide the dispute, and it may involve different costs and procedural options. Mediation is different: an independent mediator helps the parties reach their own agreement but does not impose a decision. Have your chosen procedure legally reviewed for clarity, cost and accessibility.

4. Agree what continues during a dispute

A dispute does not automatically bring day-to-day operations to a halt. Discuss how the parties will handle ongoing support, supplies, access to systems and undisputed invoices. Avoid automatic sanctions without considering the circumstances. Whether suspension or termination is justified depends on the agreement and the applicable law.

Keep careful records of relevant correspondence, reported issues and agreements. Once a solution is reached, record who will do what and by when. Then assess whether any unclear instructions or conflicting contractual provisions need to be amended, so that the same disagreement does not arise at another outlet.

Practical takeaway: before entering into your first franchise agreement, write one clear process that takes a complaint through to resolution. Test it against an imaginary payment dispute and a complaint about support. Can both parties see who makes decisions, what happens next and when legal help is needed? If so, you have a workable starting point.