Conflicts Between Franchisee and Franchisor – How to Resolve Common Franchise Disputes

date icon 6 minutes to read date icon 12th September, 2022

Conflicts take place in all parts of life and the franchisor and franchisee relationship is no exception. There are commonly-occurring conflicts between franchisor and franchisee that you should anticipate and know how to address if you want your relationship to be as successful as possible. This article explores the sources of some of these conflicts and also offers some useful tips on how these can either be mitigated, avoided or dealt with altogether. Let’s take a closer look.

Examples of conflicts between a franchisee and franchisor

Some of the most common sources of conflict in franchise disputes are the following:

  1. Lack of due diligence

Lack of due diligence can take place both on the part of the franchisor as well as on the franchisee. The franchisor can make this mistake in the franchise recruitment process when they do not screen prospective franchisees effectively and expect them to be the perfect fit for the company when not just anyone will do. For franchisees, this mistake can occur when they do not ask enough questions and the right questions to ensure that they know exactly what they are getting into over the long term. As a result, these aspects that are neglected can easily turn into a source of franchise conflict where expectations can be difficult to manage.

  1. Royalty, management or marketing fees

This source of conflict usually arises in the franchisee who then expresses their dissatisfaction to the franchisor. It relates to the payment of ongoing royalty fees that must be paid to the franchisor on a regular basis. Some franchisees may find the fees quite steep or simply unaffordable in a particular economic climate. However, franchisors will often be unwilling to change these as they generally apply across the entire franchisee network.

Other aspects related to costs and fees include management or marketing fees. Franchisees may feel forced to pay these without seeing direct benefits in their business units.

franchisor and franchisee opposing each other
  1. Standard operating procedures

Because franchisors have generally worked on their business model, perfecting it for years, they have established an operations manual that should be followed by every franchisee in order to see the expected levels of success. However, many franchisees will certainly not have this background and may have new ideas for how operations should be handled. The rigidity on the part of the franchisor and the innovation that a franchisee brings to the table should be married in order to resolve potential problems.

  1. Support, guidance or assistance

A franchisee pays the initial franchise fee to have access to the intellectual property and processes of the franchisor. However, this fee also includes support, guidance and assistance. In some cases, franchisees may feel that the levels of support and training they’ve received are insufficient to prepare them for the road ahead. They may feel hard done by if they feel that their money is wasted and that they are not strong enough to continue the franchise operations on their own.

  1. Unrealistic expectations and poor performance

Franchisees may sometimes have unrealistic expectations of a franchisor, especially if the promised levels of profitability are not what they are currently earning. In addition, franchisors may feel frustrated at a franchisee’s poor performance and wonder why this is the case when so much time and effort was invested in training them to handle the business operations.

  1. Communication

Another challenge that may arise can happen to anyone in life. This is a problem of communication. Ideas can get lost in the language that is used by either of the parties and efforts must be made to really understand the person and their way of communicating so that any ambiguities are cleared up immediately.

  1. Market conditions

Considered more of an external factor are market conditions. These are, of course, out of the franchisee’s and franchisor’s hands. However, they may play a role in terms of the franchise unit’s levels of profitability. In a recession, for example, it may happen that fewer clients book services and this can be another cause of frustration.

  1. Changes to territorial exclusivity rights

Finally, there are potential changes in territorial exclusivity rights. While in most cases, a franchisee is promised a certain predefined geographic area, sometimes a franchisor may use parts of that territory for other purposes and shrink, change or alter a franchisee’s exclusive area. This can be a potential source of conflict because the franchisee will feel that what they’ve paid for isn’t being delivered. Promises are not being adhered to and this can also lead to difficulties in communicating.

Franchise dispute resolution: how to resolve common franchise conflicts


Despite the above-mentioned challenges and potential sources of conflict, there are ways for managing conflict as a franchisee as well as managing conflict as a franchisor. Here are some important guidelines to follow.

  1. Recruit correctly

Franchisors should be sure that they put in place the right processes when they begin their franchise recruitment. This involves proper screening, background checks, thorough interviews, second and third interviews and more. Franchisees should also do their due diligence and arm themselves with as much information as possible to make a decision that they will not regret. Part of the win is asking the right questions and both parties must do this to ensure that relations don’t turn sour.

franchisee and franchisor arguing over business goals and strategies
  1. Communicate openly

Open communication is key in the franchisor-franchisee relationship. This is why it’s crucial to have regular discussions and even meetings to discuss any minor misunderstandings which could turn out to become larger problems in the future. Also important to mention at this point is the importance of listening deeply and carefully. It’s amazing how much we miss out on important information by letting our minds wander or not taking someone’s concerns seriously. Listening should therefore be an active part of the internal communication process.

  1. Encourage collaboration

One of the best things about being a franchisee is the franchisee support network that’s available to you. You work with other franchisees and not in competition with them. These are your partners when things go wrong. Don’t be afraid to seek out their help and advice because in most cases, they’ve been through your challenge before. Franchisors should therefore attempt to encourage rather than discourage franchisee collaboration by facilitating the process of communication and creating a space where a fruitful discussion can take place.

  1. Avoid referring to the franchise agreement

The franchise agreement is one of the legal documents that bind the franchisor and franchisee together. It sets out rules, rights, obligations, responsibilities and so much more. When things go wrong. It’s easy to refer to this agreement and name the clause that’s being breached. But before doing that, either party needs to approach the other one with a reconciliatory mindset and steer away from the legal side of things if the problem can be resolved without resorting to legal experts.

  1. Find common ground

When a conflict presents itself, both the franchisor and the franchisee should try to find common ground. Instead of focusing on the negative, look at the positives that may arise out of the situation. See what you actually agree on and focus on this as opposed to only focusing on the disagreements. Once you’ve done this, you should consider seeing what aspects each party is willing to relinquish in order to reach a compromise. You don’t have to head for the door every time things don’t go your way. Instead, try to find workable solutions to the problem at hand.

Final thoughts

In franchising, it’s crucial not to look at the relationships as “franchisee vs franchisor”. It’s never one against the other. Instead, it should be seen as a partnership or a collaboration where both sides work together to iron things out. Don’t let conflicts fester, address them as soon as possible to ensure that the relationship doesn’t sour and to avoid the franchisee heading for the exit clause in the franchise agreement. Listen actively, be invested in communication, and behave ethically. Take the initiative and resolve issues as and when they arise. This will save both parties a lot of trouble and headaches in the long run.