It is very common in franchising for the franchisor to put an arbitration clause in the franchising agreement and the generally it is very easy to see if a Franchisor has done this, because it will appear on the very first page of the 250 page Uniform Franchise Offering Circular or UFOC. In fact, if a Franchisor has put this into his franchise agreement then chances are he will also pick the city and state in which the arbitration must be held. The choice of venue is not recognized in all states but usually it is. Many franchisees are upset with this giving away of their rights for civil litigation once a dispute erupts. Generally when they signed a franchise agreement it sounds fair to give away their rights to sue in trade for arbitration. Franchisees say things such as; I would love to be able to present my case in a civil court any where in the country. To my amazement, this is not allowed. I'm forced to arbitrate. However, they must understand that when you sign the franchise agreement you agree to this in advance. Still, they often believe they have the right to a trial by jury, but that is not true either in all business civil litigation cases. And in the case of a franchise where they have signed the franchise agreement agreeing to arbitration in the event of a dispute they must understand that they have waved that in advance, but if there was fraud and you can prove it then what you signed in advance is null and void because you were falsely induced and their was misrepresentation and or fraud of course. Many Franchisors also complained that arbitration cases usually benefit the franchisee and cheat the Franchisor out of what was legally agreed upon in the beginning. Many Franchisors in hindsight wish that litigation was stipulated in the franchising agreement. Nevertheless in the end generally speaking arbitration is much less expensive for both parties to handle disputes. Executive management teams in franchising need to decide these clauses in advance and they need to consult with a good franchising attorney to decide if this is in their best interest, although they must realize that franchising attorneys make money from litigation and generally do not make so much money from arbitration. And therefore due diligence is required on the part of the Franchisor and of course if you are a franchisee you'll want to think about this in advance of signing away your rights to litigation. Please consider all this in 2006. |
