Franchising mediation is a complicated subject. If the franchise system is ethical, mediation can be effective in dispute resolution and can help provide a safe and secure method for both parties to compromise to reach a solution. Mediation, like other tools (audits, training, etc), is important when used appropriately.
However, in our experience researching franchise systems, mediation is a method used by unethical franchisors to hide systemic issues and leverage their own position. Franchising mediation is nearly always wrapped up in confidentiality agreements and prohibits franchisees from sharing their experiences. This leads to cycles of exploitation where franchisees are encumbered by mediation and restricted from speaking out to stop the cycle. This raises questions around the practicality and viability of not only mediation, but also including lists of names and numbers of franchisees for prospective buyers to contact in the Disclosure Document. If a number of franchisees have been mediated out, they likely are unable to recount their true experience.
- Mediating out franchisees
Even with the Inquiry into the Operation and Effectiveness of the Franchising Code of Conduct and the protection it provided, franchisees who had been mediated out were too fearful of breaking their confidentiality agreement and being legally pursued to put in public submissions. Sometimes they were also too fearful to put in confidential submissions. Keep this in mind when lobbyists, the franchise sector, and researchers refer to the number of franchisee submissions when concluding that there are only a few bad apples in franchising.
Systemic issues can be easily hidden when franchising mediation is frequently used. While on paper, mediation may appear to be successful in concluding a business relationship between franchisee and franchisor, in reality it can be hiding sinister problems while silencing franchisees.
- Successful mediation
What determines a successful mediation? As it currently stands, if there is a successful mediation between franchisee and franchisor, the public will never know if it was fair. Franchisees are often in a vulnerable and desperate state by the time they partake in mediation. They are often drained of financial resources and out of financial distress may feel obligated to settle on inequitable mediation terms.
- Mediation failing
By the time many franchisees come to us, mediation has already failed or is out of the question. Too often, we have heard of instances where mediation is used by the franchisor to paint the franchisee as a negligent or improper business person rather than to find a compromise. Finding the time to attend the mediation, affording someone to cover for them while away from work, and having the emotional strength and communication skills to withstand what could feel like an attack on their abilities; mediation is a burden for stressed franchisees if no appropriate resolution is realised.
- Mediation imitation
We are then drawn to the problem of meetings that aren’t formal mediations but are similar enough. We call this mediation imitation. Sometimes this is to the benefit of the franchisee if the franchisor is ethical as it enables a free, open and transparent no-obligation meeting.
It can also be to the benefit of the franchisor as it is not recorded as a formal mediation. This setting can be helpful in managing unhappy franchisees however problems begin to arise when mediation imitation becomes standard practice.
Similar to the key problem with mediation itself, excessive mediation imitation prevents proper disclosure of the true amount of discontent in the system. We have been part of mediation-type situations where the franchisor is not willing to listen or understand the reality of running the franchise, and also threatened libel action.
In mediation-type meetings, the franchisor will often have a lawyer present. This then covers the entire meeting with “legal privilege”. Particularly if the franchisee cannot afford to have their own lawyer present, there is an immediate imbalance. Franchisees often do not have complaints about legal breaches, rather concerns around fairness or ethics. Having their lawyer present would likely be inefficient.
To fix the current dispute resolution process, there needs to be a fix to the imbalance. Retail Food Group refused our presence as support people or advocates in mediation-type meetings with franchisees. These franchisees were then left without effective support.
We would encourage the creation of a single body to manage disputes. This would only work if this body was entirely free of the effects of lobbying and influence of the franchise sector. It would also need to focus on ethics and fairness in addition to the law. We would also encourage the facilitation of franchisee advocates being part of dispute resolution to assist in fixing perceived or actual power imbalances. To be very clear, we are not seeking to be those advocates.
Know of a systemic issue? Contact us 24/7: email@example.com or 0434 003 822/0458 369 975.
Published: 10 October 2019