Many franchising disputes involve allegations of a lack of franchisor support. Franchisees typically enter into franchise agreements expecting support from their franchisor, which can take many forms: ongoing training, process development, or simply being available to respond to questions. When the expected support doesn’t materialize, franchisees often feel disgruntled and wonder what can be done. In this article, we explore what a franchisee can do when feeling unsupported by their franchisor.
What support do franchisors need to provide?
The support franchisors are obligated to provide largely depends on the franchise agreement’s terms. While most agreements detail franchisee obligations, they often say little about franchisor support. Reviewing the agreement itself may reveal specific clauses requiring support, such as coaching or training. If the franchisor hasn’t met contractual obligations, seeking legal advice may be necessary. The franchisor may also outline their proposed support in the operations manual. Importantly, while most franchise agreements contain a clause requiring the franchisee to comply with the operations manual, there is typically no similar clause requiring the franchisor to do the same. Accordingly, even if the operations manual sets out how the franchisor will provide support, a failure to do whatever it is stated they will do may not constitute a breach of the agreement.
Franchisors are also subject to the Franchising Code, including the obligation of good faith, discussed in our previous article. If lack of support breaches this obligation—such as ignoring struggling franchisees or supporting some franchisees but not supporting others —you could raise this issue and claim a breach of this statutory duty. Specialist legal advice should be sought before alleging any breach of the franchise agreement and/ or the Franchising Code.
What can I do if I feel unsupported by my franchisor?
If you’re a franchisee feeling unsupported, several steps can be taken. Before raising the issue, review your agreement for relevant clauses. Then consider:
- Raising the matter informally: A simple conversation with the franchisor may help. Express your feelings, what support you need, and what you’d like the franchisor to commit to.
- Issuing a dispute notice: If informal discussions fail, formally raise the issue under the Franchising Code. This can prompt discussions toward resolution. Importantly, issuing a formal dispute notice pursuant to the Franchising Code will trigger the dispute resolution process, thereby requiring the franchisor to try and resolve the dispute in good faith. If that fails, the dispute may then be referred to mediation, which the franchisor will be legally obliged to attend.
- Collaborating with other franchisees: Strength in numbers can compel action from the franchisor to preserve brand goodwill and the size of the network. Before any sort of ‘group demand’ is issued, however, it is important to consider confidentiality obligations and obtain specialist advice.
What if my franchisor refuses to support me?
Most franchise agreements are fixed term. Further, most franchise agreements do not contain a clause entitling the franchisee to terminate at will. Accordingly, unilaterally terminating the agreement or ceasing operations could breach the franchise agreement, exposing the franchisee to damages. Instead, the franchisee could:
- Consider selling the business: If profitable despite the lack of support, selling might be an option. Refer to the agreement’s assignment or transfer provisions.
- Seek external coaching: A business coach can improve operations, assist with planning and marketing, and streamline processes.
- Request early termination: The Code allows franchisees to request early termination, prompting the franchisor’s consideration. A franchisor who receives an early termination request must respond to that request within 28 days. If the termination is refused, the franchisor must set out substantive reasons why the request has been declined.
- Seek assistance from other franchisees: Peer support can be highly valuable in franchise networks. A franchisee may ask for contact details of successful franchisees or join franchisee committees for learning and motivation. As a general rule, having high-performing franchisees benefits the entire franchise network. Accordingly, other franchisees are often willing to provide tips, allow another franchisee to shadow them, or engage in discussions with a view to improving performance.
Key Takeaways
- Franchisees should review their agreement for clauses on franchisor support and seek legal advice if support is lacking.
- Informal communication with the franchisor, formal dispute notices, and collaboration with other franchisees are steps franchisees can take if they feel unsupported.
- If a franchisor refuses support, franchisees can explore options like selling the business, seeking external coaching, requesting early termination, or seeking assistance from other franchisees.