How to Take Action for Franchise Agreement Violations

Written by Jennifer Mueller, JD

Updated: March 29, 2019

Through a franchise agreement, a company sells the rights to use its trademarks, image, and products to operate a location in another area. These agreements can be lengthy, and the sheer number of substantive requirements creates significant areas in which violations can occur. Because franchise litigation is complex commercial litigation that can take years to finally resolve through the courts, if you want to take action for franchise agreement violations you need to do everything you can to resolve the problem out of court.[1]

Method One of Three:
Negotiating with the Other Party

  1. 1
    Compile your evidence. Before you contact the other party regarding the franchise agreement violations, you must have documentation of the violations that are taking place and a good idea of how you want the matter resolved.[2]
    • If you have any evidence or documentation that the other party is violating the agreement, address the matter immediately rather than letting it build.
    • Keep in mind that matters tend to be resolved more easily if they are addressed when they are small, rather than waiting until the violations become more entrenched and substantial.
    • Give some thought to how you'd like to see the problem resolved. If you've caught the violation early, you may simply want the behavior corrected so the violation doesn't continue.
    • For example, if you've learned that your franchisee is using sub-standard food products, or products obtained from an unacceptable distributor, you can remedy this violation by pointing them to the acceptable food products or distributors and requesting they switch immediately.
  2. 2
    Consider consulting an attorney. While you can certainly draft your own letter providing the other party with notice of their breach of contract and demanding a resolution to the problem, a letter coming from an attorney may be taken more seriously.[3][4]
    • Hiring an attorney at this stage also may be preferable if you anticipate the other party will not react favorably to the letter, and you may have to file a lawsuit to get the matter resolved.
    • An attorney can analyze the situation and present your options under the law to remedy the situation, as well as clarify whether the other party's actions amount to a substantial violation of the franchise agreement.
    • Typically you can use a business transactional attorney to draft the letter. However, if you anticipate litigation you should look for someone who specializes in franchise litigation.
  3. 3
    Draft a demand letter. A relatively brief, fact-based letter written in standard business format should communicate to the other party the ways in which you believe they have violated the franchise agreement and how you want the issue resolved.[5]
    • Maintain a cordial, professional tone, and stick to the facts. Begin your letter by referring to the franchise agreement and specifying the clause you believe the other party has violated.
    • Summarize the facts that constitute the violations, and explain how you'd like these violations addressed.
    • If you intend the letter to satisfy any "notice of breach" requirements sent forth in the franchise agreement, state this specifically.
    • Give the other party a firm deadline to respond to your letter. A week to 10 days from receipt typically is enough time. Don't measure your deadline from the date you sent the letter, as this can be unfair to the other party if delivery is delayed for some reason.
    • Let the other party know what your next step will be if the violations aren't addressed promptly.
  4. 4
    Send your demand letter. After you've finalized and proofread your letter, print it off and sign it. Make a copy of the signed letter for your records and mail the original signed letter to the other party using certified mail with returned receipt requested.[6][7]
    • Don't send your letter using email, because you won't have any idea when the other party receives it. You may need this information later if you decide to file a lawsuit and need proof that you attempted to remedy the situation before filing a lawsuit.
    • When you get back the green card letting you know that your letter was received, mark the date of your deadline on your calendar.
    • Make a copy of the green card and keep both with your copy of the letter and copies of the franchise agreement itself.
  5. 5
    Evaluate the response. How the other party responds to your letter will determine what your next steps need to be. You may be able to meet with them and work out a mutually acceptable solution together without any further complications.[8]
    • Keep an open mind that the violation may have been the result of a simple misunderstanding that is quickly and easily remedied.
    • At this stage, you do yourself a favor by being flexible and willing to work with the other party to find a solution to the issue. Keep in mind that resolution has cost you nothing but postage.
    • If you come up with a solution to your dispute, make sure you get the terms in writing – particularly if it involves a promise from the other party to take actions or to stop doing something that violated the agreement.
    • Any new promises or changes you make to the original franchise agreement as a result of your negotiations must be in writing and signed by both parties if you intend them to be legally binding or to alter the terms of the original written agreement.
    • Work with the other party to come up with a cost-effective solution. For example, if your franchisee is using an unacceptable vendor to supply food products, but they have signed a months-long contract with that vendor, you might be able to work with them to terminate that contract early and find a new supplier.

Method Two of Three:
Using Alternative Dispute Resolution

  1. 1
    Review your franchise agreement. Your franchise agreement may include a clause requiring any disputes to be handled using alternative dispute resolution (ADR) such as arbitration or mediation.
    • If you didn't draft the franchise agreement, look for an ADR clause towards the end of the document, with the other provisions that relate to the resolution of disputes under the agreement.
    • There are three basic types of ADR your agreement may specify: binding arbitration, non-binding arbitration, or mediation.
    • The procedure for binding and non-binding arbitration are similar to a court hearing, only somewhat less formal. Either form of arbitration involves presenting both sides of the case to an arbitrator or panel of arbitrators, who make a decision as to how to resolve the dispute just as a judge would.
    • The only difference between the two is that a decision made through binding arbitration typically precludes a lawsuit, while a non-binding arbitration decision may be ignored if the parties don't agree to it.
    • Mediation is a voluntary process, and less formal than arbitration. A neutral third party facilitates the discussion between you and the other party with an eye to arriving at a mutually agreeable compromise.
    • With mediation, you have a lot more freedom to find a solution, and can even agree to something that could never be ordered by an arbitrator or a court.
  2. 2
    Notify the other party. In many cases, an ADR clause in an agreement requires notice to the other party that you intend to proceed under that clause. Even if your clause doesn't require specific notice, or there is no ADR clause in your agreement, it's still a good idea to let the other party know you want to handle the alleged violations through an ADR provider.
    • If notice isn't required by your agreement, try to give the other party at least one week's notice that you intend to use ADR. Let them know what method you want to pursue and provide some options for acceptable ADR providers.
    • As with any other letters you've sent related to the franchise agreement violations, make a copy of your signed letter before you send it and mail it using certified mail with returned receipt requested.
    • Keep in mind that since mediation is a voluntary process, you cannot proceed with mediation unless the other party consents to it.
  3. 3
    Choose an ADR provider. If your franchise agreement doesn't identify a specific group or service that you must use for ADR, it's up to you and the other party to choose which provider you want to use.[9][10]
    • Many cities have community mediation programs that may be your most cost-effective option.
    • You also can find ADR providers approved by your state bar association or court system by searching on your state or local bar association's website, or contacting the clerk of the local county court.
    • Keep in mind that your choice typically must be approved by the other party before you can schedule an appointment.
  4. 4
    Prepare for your appointment. Although the way you'll present your side of the story and the strategies you use may differ depending on whether you're using mediation or arbitration, they way you'll prepare is essentially the same.[11][12]
    • When you schedule your appointment, your ADR provider typically will give you forms to fill out and information about the process and the types of documents or other evidence you should bring with you to your appointment.
    • At a minimum, you must have a copy of the franchise agreement, as well as any documents you have that prove the other party is violating that agreement.
    • Arbitration is similar to a court trial, and often uses similar rules of evidence and procedure. You may want to consider hiring an attorney to represent you at arbitration if you feel uncomfortable with the proceeding – especially if you're submitting to binding arbitration.
    • While the rules that govern mediation are considerably looser, contact the mediation provider if you have questions regarding your ability to bring any particular documents or witnesses with you.
  5. 5
    Attend your appointment. Make sure you arrive at the location at least a half hour early so you have time to find the room or rooms where your ADR session will be held and get yourself settled before proceedings commence.
    • A mediation session typically begins with all the parties together in one room. The mediator will conduct introductions and explain the procedure before moving you to separate rooms. The majority of the negotiations will take place like this, with the mediator going back and forth between you.
    • Arbitration, on the other hand, proceeds much like a trial. Your hearing may even be held in a courtroom, or a room set up much like a courtroom.
    • Each side will have the opportunity to present its arguments, including introducing evidence or calling witnesses, and then the arbitrator or panel of arbitrators makes a decision based on everything they've heard.
    • If you fail to reach a resolution through mediation, the mediator will declare an impasse and you are free to pursue other options such as a lawsuit.
    • Arbitration decisions, on the other hand, typically are binding. If you had non-binding arbitration, either party has the power to reject the decision, at which point you may submit to additional arbitration or proceed to court.

Method Three of Three:
Filing a Lawsuit

  1. 1
    Choose the correct court. If you decide you must file a lawsuit, the court that can hear your case depends on the type of problems you're having and the remedies you're requesting to resolve those problems.[13]
    • A standard breach of contract action typically can be filed in state or federal court. If you and the other party live in different states, federal court may be more appropriate, depending on the issues at stake.
    • You may even be able to use small claims, although you should keep in mind that small claims courts typically are limited to monetary damages under a certain amount. While the small claims limit in some states is as high as $10,000, it can be half that in others.
    • Franchises also come under a variety of state and federal laws and regulations, and these may impact the violations at issue. If you're lawsuit is related to a federal law or regulatory requirement, you must sue in federal court.
  2. 2
    Hire an attorney. Because franchise litigation, even a standard breach of contract case, can be fairly complex, if the dispute escalates to the point that you feel it necessary to file a lawsuit to resolve the dispute, it's best to have an attorney on your side.
    • Particularly if you're suing in federal court, the relatively complex rules and procedures practically require an attorney to help navigate the system and avoid costly errors.
    • If you don't already have someone in mind, you can get the names of some business litigation attorneys in your area by searching on your state or local bar association's website. You might also ask respected colleagues for recommendations.
    • Make sure you hire an attorney who has specific experience litigating cases that involve franchise agreements on behalf of parties similar to you.
    • In other words, if you are the franchisee and you're suing the franchisor, look for an attorney with experience representing franchisees in similar lawsuits.
  3. 3
    Draft your complaint. The complaint, along with a summons and any other required documents, initiates your lawsuit by introducing the court to your franchise agreement and explaining how the other party has violated that agreement.[14][15]
    • Your attorney will need your copy of the franchise agreement to draft the complaint, as well as any evidence you've gathered related to the other party's violations of that agreement and the steps you've already taken to attempt to resolve the dispute.
    • Based on the factual allegations you've presented, your attorney will advise you on the remedies that are legally available to you and give you a good idea of what the best case scenario is for the outcome of the litigation.
  4. 4
    File your complaint. Once your complaint and any other required documents are completed, they must be filed with the clerk of the court that you want to hear your lawsuit so that litigation may commence.[16]
    • There will be a filing fee that must be paid, typically several hundred dollars. Your attorney will let you know you need to pay this separately, or if it will be added to your bill or deducted from your retainer.
    • You will get a file-stamped copy of the documents for your records. Another copy must be served on the other party so they have notice of the lawsuit against them.
    • Typically the other party is served by having a sheriff's deputy (a U.S. marshal in federal court) hand-deliver the court documents. The fee associated with this typically is added to your court costs not dedicated from the retainer you paid your attorney.
  5. 5
    Receive the other party's answer. After the other party receives your complaint, they have a limited period of time – typically 30 days or less – to file a written answer or other response. If no response is filed by the deadline, you may be eligible to win your case by default.[17]
    • You shouldn't expect the other party not to respond to your lawsuit, but keep in mind that even if they don't, the case isn't over yet. You still must prove to the judge that you're entitled to the damages or other remedies you're demanded.
    • More likely, the other party will file an answer denying your allegations and listing a number of defenses or counterclaims against you. Your attorney will go over these with you and let you know if any immediate response is required.
    • In some situations, the other party also may contact your attorney with a settlement offer. Your attorney must present this offer to you and advise you on whether to accept or reject it, but the final choice ultimately is yours.
  6. 6
    Litigate your lawsuit. Once the complaint and answer have been filed, the case is ready to proceed to the next stages of pre-trial litigation. Typically you begin with written discovery, in which both sides exchange documents and written evidence related to the case.[18]
    • Written discovery consists of interrogatories – written questions that are answered in writing under oath – and requests for production. through requests for production, both you and the other side have the opportunity to acquire information related to the operation of the franchise and the actions that constitute franchise agreement violations.
    • You also may conduct depositions, particularly if you want to question the manager of the franchise or other franchise employees involved in or responsible for the violation of the agreement.
    • Pre-trial litigation takes many months to complete. During this time, you and the other party may continue to keep settlement negotiations open. In most cases, you'll find an avenue towards settlement before trial.

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Updated: March 29, 2019
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