Managing Franchise Disputes in Saudi Arabia: Establish a Clear Process Before Granting a Franchise

When you turn an existing business into a franchise model, explaining how to run a branch is not enough. You also need to make clear what happens when you and the franchisee disagree. A dispute may begin with an invoice for support services or unclear operating instructions, then escalate because no one is responsible for responding. Establishing a dispute-handling process early protects trust across the franchise network and prevents every operational objection from becoming a contractual confrontation.

Separate legal obligations from the dispute-handling process

Franchising in Saudi Arabia is governed by the Commercial Franchise Law and its Implementing Regulations. The law applies to any franchise agreement performed within the Kingdom. It requires the agreement to be written in Arabic and signed by both parties, or accompanied by a certified Arabic translation if drafted in another language. It must also contain specified elements, including a description of the franchised business and the fees payable by the franchisee.

These requirements matter when designing your dispute-handling process. An internal procedure must not be used to change an agreed financial obligation or impose a new interpretation of the agreement without a proper basis. Its purpose is to gather the facts, identify the relevant provisions and help both parties reach a solution—not to create undisclosed rights for either party.

The franchisee must also receive the disclosure document at least fourteen days before signing the agreement or paying any amount relating to the franchise, whichever comes first. In practice, make the dispute-handling procedures clear while the prospective franchisee is reviewing the documents, rather than presenting them after signature as a condition already settled.

Have a Saudi legal adviser review the wording to distinguish internal service procedures from binding notice and dispute-resolution provisions. The operational response times you choose are not statutory deadlines and should not suggest that they suspend claim deadlines or extinguish either party’s rights.

Design a simple process for receiving and categorising disputes

Before granting your first franchise, designate an official channel for receiving complaints and assign someone to record them. This could be a dedicated email address or a ticketing system. What matters is that a claim does not remain scattered across calls to the founder, messages to the supervisor and conversations with accounts staff. Give each case a reference number and a clearly designated person responsible for following it through to closure.

Use a short form asking the person raising the complaint to provide:

• A description of the incident, when it occurred and the branch concerned.
• The obligation or instructions at the centre of the dispute.
• Supporting documents, such as invoices, correspondence and visit reports.
• The current impact on operations or financial obligations.
• The remedy sought, including any urgent action requiring a decision.

Then categorise the case by its nature: financial, support-related, interpretation of operating instructions or a contractual obligation. Do not treat a request to explain an invoice as an allegation of material breach, or leave a contractual dispute with a support employee who lacks the authority to decide it.

Set internal targets for acknowledging receipt, gathering any missing information and issuing an initial response. Choose timescales your team can meet, and explain how incomplete submissions and urgent cases will be handled. Do not present these targets as a guarantee that every dispute will be resolved within a fixed period.

Base decisions on facts and authority, not personal relationships

In a business wholly owned by its founder, a complaint may be settled with a quick phone call. A franchisee, however, operates on their own account and needs a decision that can be understood and documented. Prepare an authority matrix setting out who can correct an invoice, approve an operational remedy or propose a settlement, and who must review the legal implications before any commitment is made.

Ideally, the person whose decision is being challenged should not have sole responsibility for the final review. A supervisor can explain what happened, while another manager reviews the evidence and whether the action was appropriate and authorised. Smaller businesses can refer sensitive cases to an independent adviser rather than building a large management structure.

For example, if a franchisee disputes a charge for a support visit, start with the agreement, the visit request and evidence that the visit took place. Ask: Is the charge provided for in the agreement? Is the service already covered by another paid support arrangement? Did the franchisee approve the request through the agreed process? Do not replace these questions with a general justification about the franchisor’s rising costs.

Write the response in plain language, setting out the agreed facts, the points in dispute, the provisions relied upon, the decision and the reasons for it. If you propose an exceptional commercial remedy, document its scope and approval, and ask your legal adviser to review its contractual implications rather than assuming it automatically applies to every branch.

Define escalation steps and test the process before using it

Use a staged escalation process: an initial operational review, followed by a senior management review, then the agreed legal route if no resolution can be reached. Identify who is authorised to negotiate and sign, how meetings will be documented and how the complete case file will be passed on without requiring the other party to explain the facts again at every stage.

Do not draft the internal procedure in a way that prevents either party from approaching the competent authorities or seeking urgent protection when needed. Obtain legal review of any provision concerning jurisdiction, arbitration or notices. Nor should suspending support or services be an automatic response to a complaint: the implications of such measures require a separate contractual and legal assessment.

Test the process by simulating an invoice dispute and another involving delayed support. Look for where documents go missing, who delays decisions and whether the team can explain the outcome. Then review closed cases regularly. Repeated complaints about the same issue may reveal unclear documentation or shortcomings in delivery, rather than a problem with franchisees.

Practical takeaway: Before granting a franchise, prepare a complaint form, an escalation process, an authority matrix and a written decision template. A good process will not prevent disagreements, but it will provide a fair and clear route to resolving them.