07
Oct
2021

Arbitration In International Franchise Agreements

The use of arbitration on international franchise continues to be on the rise.

Even before any arbitration demand is filed, both the franchisor and the franchisee have to make multiple tactical decisions. These relate to what is included in an arbitration clause, which may help to agree, appeal or avoid an arbitration clause. It may also help the choice of location of arbitration.

That’s why it’s advisable to consult with a franchise lawyer before one enters into a franchise business or signing of franchise agreements. It requires careful evaluations and considerations.

This article will look at international arbitration, the challenges, and how to overcome them as a franchisee.

Using Arbitration

The signing of a franchise agreement where there is an arbitration provision helps to cover:

  • The franchisor
  • The franchisee
  • The franchisee entity subject to such arbitration provisions

.Arbitration for the international franchise is a mutual benefit to both parties. It’s a way to resolve disputes outside of court. Those on the international levels prefer using international arbitration.

In international franchising, mater franchising is commonly used. This is because it allows for a swift brand expansion.  With this, one can expect that dispute will arise.

However, even if the clause may be deemed to benefit both the franchise and the franchisee, one should handle any arbitration issue with the help of a franchise lawyer. This is because not all international fields are the same.  In the ever-increasing franchising business, a franchisee needs to understand what kind of an agreement they are entering into. This way, they protect their interests. Regardless of the franchise industry, one may use arbitration to resolve international disputes. But one has to understand the scope of the arbitration and what it may cover.

The scope or arbitration helps to cover:

  • The franchise agreement
  • Non-competition agreement
  • Individual or corporate guarantees

To adequately cover all aspects, a franchisor should draft an arbitration clause in accordance with statutory laws.

There are many benefits for international arbitration to a master franchisee. Some include:

  • The need for privacy for both parties. Everyone wants to make the proceedings and the outcome of any decision confidential. This also helps to keep the relationship going since there will be no public exposure.
  • It helps to bring damages to an optimal level. Meaning, there is control of the number of claims to be brought up by both parties.
  • Results are more accurate compared to those obtained during litigation. For instance, an arbitrator is more inclined to bring up more precise resolutions as they will be paid for resolving the dispute.
  • It reduces cost. You don’t have to go through the discovery process.

Note that once an arbitration decision is made, there remain few chances of amendments.

If your franchisor wishes to resolve disputes through arbitration, this must be included in the franchise agreement. There is so much to deal with when it comes to international master franchising arbitration. It requires the right legal representation.

Challenges In International Franchise Arbitration

It’s always imperative to decide whether arbitration is suitable for you. This requires you to have the correct information from a franchise lawyer to help make informed decisions. That way, it becomes easy to sign a franchise agreement that contains an arbitration clause. There are few unique challenges a master franchisee may come across. Some include:

  • The take it or leave it notion from the franchisor: The fact that the arbitration process favors both the franchisor and franchisee, it’s mostly seen to work in favor of the franchisor, which may seem to have more powers.
  • Disputed objectivity:Both parties are tasked with choosing an arbitrator. Since this is done from a pool list, a franchisee is more likely to get those who are preference getting on the first line to tackle cases. This means that such an arbitrator may be less objective
  • to work in favor of the engaging party
  • Narrow alternatives:Once a decision is made, it becomes hard to change. Meaning even if a decision is unfair, the master franchise, in this case, may have no legal recourse to claim in court
  • Non-transparency: The fact that the arbitration process is held away from the public may make the process to be biased, favoring one party.

A Master Franchisee Can Avoid These Challenges

Given the possibility of having a biased outcome, a master franchisee should take the proper steps to avoid these challenges. To understand the strategy of arbitration, one can:

  • Make efforts to understand the terms of the franchise agreement: One should work with an experienced franchise attorney to understand the arbitration clause.
  • Negotiate the terms:You can negotiate the terms included in your franchise agreement. This agreement is negotiable. A franchisee can negotiate before entering into a franchise business. You should make sure to let the franchisor be aware of your objections to the arbitration clause.

Franchisors are known to make changes to their arbitration policies if they get enough distress from franchisees. If you have any concerns about international franchising, you can consult an experienced franchise attorney.

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