Franchisee Associations Proliferate During Conflict

The Wall Street Journal ran an article yesterday by Sarah Needleham entitled "Tough Times for Franchising" It details two franchised operations in strife with their franchisors, and how litigation has ensued. As an attorney representing franchisees, and their associations, I found it interesting that the Cold Stone Creamery franchisees have created some 12 new associations, many of which are taking an adversarial role against their franchisor including litigation. Associations are created for the purpose of leveling the playing field, to create a louder, stronger voice for franchisees. Typically they are cooperative groups, working with their franchisor to create meaningful input and focus, but some are created, as with Cold Stone, to combat and take the offensive.

In a relationship that often lasts 15 to 20 years, how does litigation impact the relationship between the franchisee and franchisor? Is there a more efficient and effective way to address the issues?

We have been exceptionally effective in getting franchisors and franchisees into mediation, both before and after the initiation of litigation. A conflict resolved by litigation always leaves one side a loser and one a winner, which is not the healthiest way to maintain an ongoing symbiotic relationship. There is a shift in power to the winner, with the loser taking strides at any opportunity to regain some of the lost power. I have seen it time and time again; litigation ends, and now every discussion/issue from that point on becomes a win or lose proposition, slowing down the natural give and take typically present in a franchise system. Once trust is gone, the motivation on the other side is imputed to be negative, no matter the concern.

Mediation and cooperative problem solving mitigates trust erosion, In each case that I am brought in to mediate systemic disputes, the parties walk away with a clearer understanding of each others position, and why the dispute escalated to the point it did. In almost every case, both sides were able to work through me to craft a solution that kept them on the same team, focused on the needs of the brand, and financial health of the system.

In the end franchisors and franchisees want success for all involved; it creates a healthy and strong franchise system, builds value in the franchised business and the brand.

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