Franchise disputes: build a clear path to resolution

When turning your existing business into a franchise network, you also need to plan for disagreements. A failure to provide support, a disputed invoice or differing interpretations of a promise can otherwise turn into a costly dispute. A clear path from a complaint to formal legal proceedings helps both parties understand what happens when ordinary dialogue is no longer enough.

1. Distinguish everyday problems from contractual disputes

In your own business, you can often resolve problems through a management decision. In a franchise network, however, independent businesses work together. The franchisee is not your employee, and an instruction from head office does not automatically determine how an agreement should be interpreted.

Start by defining a straightforward process for handling concerns. Specify who receives them, who investigates the issue and who has authority to approve, for example, a credit or a particular remedial action. Do not put the entire process in the hands of the person whose conduct is being questioned.

Distinguish between three situations:

• Operational issue: Something is not working and needs to be put right, but the parties agree on who is responsible.
• Complaint: One party believes that the service provided or the way they have been treated falls short and requests action.
• Contractual dispute: The parties interpret their rights or obligations differently, or one party alleges a breach of contract.

These distinctions are not legal categories in themselves, but a practical way to classify issues. The aim is to resolve everyday problems quickly while ensuring that potential breaches of contract do not get lost in a routine support queue.

2. Document the facts before positions become entrenched

Create a shared record for each significant concern. It should set out what happened, the relevant dates, the contractual provision being relied on and the resolution sought by the complaining party. Keep relevant emails, invoices and agreements too.

Suppose, for example, that a franchisee disputes an invoice because a promised service has not been delivered. Do not start by asking who is right. First check what service was agreed, when it was due to be provided and what records exist of its delivery. Separate the facts from the parties’ assessments.

Acknowledge the concern in writing and state when the next update will be provided. Choose timeframes your organisation can meet. An automated acknowledgement is not the same as a substantive response.

After a meeting, both parties should receive a summary covering:

• what they agree and disagree on,
• what further information is needed,
• who will do what, and by when,
• the date of the next review.

If a settlement is reached, document it separately and have it approved by authorised representatives. State clearly whether it resolves only the current issue or also changes arrangements for the future.

3. Set out the dispute resolution route in the franchise agreement

There is no universal Swedish standard agreement that automatically resolves these questions. Ask a lawyer with franchise experience to draft a dispute resolution clause suited to the scale and financial circumstances of the relationship.

One possible sequence is to begin with negotiations between designated contacts, followed by discussions between decision-makers, and then mediation if the parties wish to try to reach a voluntary settlement. If the issue still requires a binding legal decision, the agreement needs to specify how that will be obtained.

Court proceedings and arbitration are not interchangeable default options. Court proceedings are generally subject to public access, and the scope for appeal is governed by procedural rules. Arbitration takes place outside the ordinary courts, with limited grounds for challenging the award. It also involves costs such as arbitrators’ fees. Do not assume that arbitration automatically places the parties under a comprehensive duty of confidentiality.

Ask the lawyer to explain both parties’ exposure to costs and assess whether the clause is reasonable. There must be a practical way to handle a small claim. Nor should negotiation stages be designed in a way that blocks necessary urgent legal action.

4. Explain the exposure to costs before the agreement is signed

Sweden has a specific Act (2006:484) on Franchisors’ Disclosure Obligations, but no comprehensive law governing the entire franchise relationship. General contract law and the applicable procedural rules are therefore among the rules that matter when handling disputes.

The disclosure legislation requires the franchisor to provide clear, comprehensible written information well before the agreement is entered into. Its minimum requirements include information on how disputes arising from the agreement will be resolved and the rules governing liability for costs in such disputes.

Choosing a dispute resolution model internally is therefore not enough. The prospective franchisee needs to be able to understand its implications before signing. Make sure the information provided is consistent with the final agreement. Explain the applicable arrangements without promising a particular outcome or a fixed total cost.

Practical next step: Write a one-page guide showing the route from raising a concern to formal dispute resolution. Then ask your lawyer to check that your procedures, franchise agreement and pre-contract disclosures all describe the same process. This gives your franchise network a better chance of resolving disagreements before they become deadlocked disputes.