Dealing With Franchisee Disputes

Ideally, franchising is a mutually beneficial arrangement.  On one side, the franchising organization grows and prospers by offering investors the chance to use its successful name and business model in return for royalties and franchising fees.  On the other side, franchise owners get the opportunity to start a business that has a greater chance of success than an independent business would and comes with a pre-existing customer base.
It seems that with so much to gain on both sides that there could be little cause for complaint from either party.  Of course, that isn’t at all realistic.  The truth is that franchisors and their franchisees bump heads regularly.  Any franchising company whose Franchise Disclosure Document doesn’t list at least a few lawsuits hasn’t been franchising very long.  Franchisor/franchisee disputes are so common, in fact, that a whole subset of legal council has arisen to cater to parties on both sides.
However, in most instances it does not serve a franchisor well to allow things to progress to the point of litigation.  As mentioned, those suits all have to go into the franchisor’s FDD.  Even if the case goes in favor of the franchisor, having those complaints levied by franchisees does not look good for potential investors.
In order to prevent litigation, franchisors may attempt to resolve conflicts through other channels first.  In fact, many franchising agreements may even include mediation and arbitration clauses which obligate franchisees to pursue resolution through this channels before, or in lieu of, pursuing legal recourse.  However, such clauses are not the norm.
Mediation and arbitration clauses are not common because of one simple fact.  When push comes to shove, the franchisor can almost always out-gun the franchisee in court.  So, while the franchisor may prefer to avoid litigation, if it feels that its chances of coming out ahead through mediation or arbitration are week, then it may prefer to take the hit of the FDD suit disclosure and go for the win in court.
Those franchisors who do not contractually obligate their franchisees to pursue mediation and arbitration are often still inclined to push those means of resolution.  Again, avoiding litigation is best for the franchisor in almost all instances (except those wherein the franchisor probably really is in the wrong).  This does not mean that mediation and arbitration cannot work in favor of the franchisee, though.
In fact, mediation or arbitration, either one, is often mutually beneficial to both parties.  It, of course, allows the franchisor to avoid potentially embarrassing litigation.  For the franchisee, it provides a means of having his or her complaint heard and addressed without the expense of going to court.  Since arbitration is generally binding, as per agreement before arbitration, it can be just as effective as litigation.
Though mediation is generally not binding (unless both parties agree to abide by it after the fact), it can still provide a channel to allow franchisor and franchisee to reach a mutual understanding and agreement without escalating the conflict beyond the point of repair.  Generally, by the time a dispute reaches court there is no longer any chance of maintaining a working relationship.  Mediation and arbitration both allow conflicts to be addressed while preserving the franchisor/franchisee relationship.