Franchising is the granting of a license by a franchisor to a franchisee, which entitles the franchisee to operate their own business using the franchisor’s brand, systems, knowhow and business model. It is a close relationship under which the franchisee receives initial training and, crucially, ongoing support to establish a previously untrained person in the business.
When a dispute between franchisor and franchisee arises the stakes can be high. For a franchisee the franchise can be his entire livelihood. Most franchise agreements contain non-compete and compulsory sale clauses, which bite when the agreement ends meaning that a dispute may lead to the loss of a franchisee’s business without compensation. For the franchisor if a dispute undermines brand and knowhow it will risk the whole foundation of the franchise, severely hindering the franchisor’s ability to retain or recruit other franchisees. If not handled carefully, a dispute with one franchisee can often expand into a dispute with several franchisees or the entire network.
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