Top 7 Issues with Franchise Arbitration Clauses

By on November 13, 2017

It is often argued in the franchising industry that the arbitration clauses in  franchise  agreements tend to benefit the franchisee because they allow them to compete against the more well-financed franchisor in disputes arising from the franchising agreement. This is true in many cases because the cost of litigation these days is absolutely insane.

However there are often franchisees who complain that the Franchisor has the upper hand in arbitration disputes. Some franchisee attorneys and sophisticated franchisees state such things as: “Over the years I can assure you that it has been with in their best interest to make sure big business includes an arbitration clause in every contract.”

One problem I have seen is when the franchisors are heavily community driven and they draw the arbitrators from that community where the franchisor is based. Generally in the  franchise  agreement the Franchisor pre-stipulates arbitration and where that arbitration will take place, the exact city and venue. If a franchisor is well known and gives back to that community then anyone in franchising with experience who even knows enough to hear such a case has connections or pre-conceived notions for the franchisor.

Although one might assume that if these  franchise  expert arbitrators hear enough cases of abuse they will soon start to turn against the franchisor. Most franchisors from larger areas such as any large MSA will be fairer, but then they slip to “the poor franchisee” syndrome, which I believe helps the franchisee more than the franchisor in arbitration cases. This debate rages on in the Franchising Industry and is up for discussion.

Some franchisee attorneys will say that; “The theory that arbitration is fast track and affordable is a myth.” And they tell stories of franchisees who put out close to $40,000 before their case is even heard. Once there case is heard the average fees for AAA Arbitrators is an hourly rate of $300.00 an hour. Further many folks complain both before and after the fact or rendered decision that; “Arbitrators are not even required to have a legal back ground.”

So, you can imagine the problems this causes. Arbitration clauses in franchising agreements are very common and both parties agree in advance to binding arbitration and this causes huge conflicts at times and yet both parties save thousands of dollars in litigation costs. Please consider all this in 2006.

Source by Lance Winslow

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