How to Handle Franchise Agreement Disputes Before They Go to Court

Disputes can arise on either side (franchisor or franchisee) and can be costly to litigate. A well-drafted franchise agreement often includes dispute provisions that recommend (or sometimes require) alternative dispute resolution, such as mediation or arbitration, before either party goes to court.

Common Franchise Disputes (and What Can Trigger Them)

Franchise disputes can stem from many issues, most commonly location performance, day-to-day operational control, or the franchisee seeking an exit. In my practice, I often see disputes where the franchisee complains that it is not generating the revenues it expected based on the franchisor’s predictions.

Other common disputes arise from:

• Late payments or non-payments and fees: late royalties, disputed charges, or unexpected system-wide costs (technology, rebrand, required remodels).

• Operational compliance: disagreements over standards, audits, required vendors, or unapproved operational changes.
• Performance expectations: disputes over targets, cure periods, or alleged defaults.
• Marketing and brand use: conflicts over local marketing, brand guidelines, or reputational issues affecting a local site (for example, a national PR crisis that impacts a local franchisee).
• Support and communication: inconsistent support, slow responses, or mismatched expectations around training and ongoing assistance.
• Territory and competition: approval of another location too close to an existing franchise, creating territorial competition.
• Termination, non-renewal, and exit: disputes over termination grounds, renewal conditions, exit payments, buybacks, or post-term restrictions.
• Contract interpretation: disputes driven by unclear, inconsistent, or overly broad contract language.

Best Practices to Reduce the Risk of Disputes

Make sure the franchise agreement clearly defines key obligations, timelines, and what happens if something goes wrong. Proactive steps to take before (and when) a dispute arises include:

1. Define termination and renewal terms - Clarify grounds, notice/cure periods, and renewal requirements.
2. Map the dispute-resolution pathway - Identify governing law, venue, ADR requirements (mediation/arbitration), legal fee shifting clauses, and escalation steps.
3. Document performance and communications - Maintain organized records (payments, correspondence, support requests, audits, KPIs).
4. Raise concerns early - Use support channels and escalation processes before positions harden.
5. Consider mediation - Use a neutral facilitator to explore solutions while preserving the relationship.
6. Consider arbitration (if applicable) - If required, understand timelines, costs, and enforceability.
7. Use litigation as a last resort - When the stakes are high or urgent relief is needed, consult counsel experienced in franchise disputes.

New Jersey State Considerations

Franchise relationships are contract-driven, but state law can significantly affect what is enforceable—particularly with respect to termination, renewal, disclosures, and remedies. In New Jersey, franchisees may have additional protections under the New Jersey Franchise Practices Act (NJFPA) and, in certain circumstances, the Consumer Fraud Act (CFA) when the NJFPA does not apply. Enacted in the 1970s largely in response to issues facing franchise automobile dealerships, many NJFPA provisions reflect that origin. Although later amendments broadened its reach, gaps can remain—leading franchise counsel to consider the CFA as a strategic tool to resolve disputes early and, in some cases, avoid protracted litigation.

Working with legal counsel experienced in franchise law can help both sides navigate the process efficiently and avoid costly missteps.

For more information on franchises, please do not hesitate to reach out to me at sjreed@norris-law.com.

About the Author- Biz Law

Steven J. Reed focuses his practice on franchising, business transactions, commercial real estate, and commercial litigation. With extensive experience in New Jersey and New York, he advises businesses at various stages of growth, handles asset and equity sales of businesses, and represents institutions in higher education. His franchise work is domestic and international, and includes representing a real estate broker franchisee in Ireland and a hotel franchise operator in Africa.