more on franchise arbitration clause

No one can deny that our court system has become bogged down, increasingly clogged, and potentially broken. Civil dispute proceedings between individuals and corporations can take months to get to court and months more to resolve themselves. The expectation of having a speedy resolution to a business or consumer conflict seems to be a thing of the past. Today, corporations and businesses from financial services to almost every franchise agreement require the investor to agree to settle a dispute through the process of arbitration where a arbitrator, usually a lawyer, sits and listens to both side of the story and then renders a decision that both sides have agreed upon in writing to be binding. There are many advantages to the alternative dispute resolution system, but it does have a fair share of criticism.

Those that favour arbitration argue that, arbitration frees up the already over-burdened court system and eliminates thousands of lawsuits. Proponents of arbitration cite reduced costs as an important benefit of arbitration. Administrative fees, hotel, and travel costs as well as time away from work are borne by the franchisee so one can hardly say that the playing field is level right from the start. A franchise arbitration hearing could be in the franchisor’s backyard and a franchisee could be forced to travel across the country at their own expense. In addition to travel costs, hotels, and an attorney, an arbitrator’s fees can be over $1000 per day and the arbitration could take many days.

Arbitration hearings could be slower than expected. Initial arbitration hearings are usually scheduled three to six months after an initial demand depending on the amount of money involved in the dispute. Larger disputes may take more time. The franchise agreement should state clearly the time, date, and place where franchise arbitration disputes will be heard. Even though a typical court case takes 9 to 12 months to come to trial, legal rulings happen quickly which often leads both parties to come to an out of court agreement.

Franchise arbitration clauses need to state that the dispute will be heard by an “independent” arbitrator, one that has no interest in one party or another. An arbitrator is usually an attorney near the franchisor’s offices and that in and of itself can present a conflict. An attorney may have a bias toward the franchisor because the arbitrator will want to be referred and hired by other similar corporations in the future. Also, an arbitrator is expected to be experienced in the industry that is in dispute. If it is found that an arbitrator has close connections to either party in the dispute, the opposing counsel should object to the appointment of said arbitrator. Above all else, an arbitrator should be objective.