Successful Mediating: Tips for Successfully Mediating Franchise Disputes

09/01/2001 / Charles Modell

Go back in time. Before the telephone was invented, and before the days of the Pony Express. Even before the first legal systems were developed to help people settle disputes. When people had a disagreement, the only civil way to resolve their dispute was to meet face-to-face and discuss it. Today, mediation is helping people turn back the clock to settle their disputes. The only difference between an old-fashioned face-to-face business discussion, and a formal mediation, is that in mediation, there is a neutral third party to help facilitate the negotiations.

Mediation forces people to talk to each other. It allows them to see the other person’s position through the eyes of a neutral third party. Most importantly, it can keep the parties from having to resolve their dispute in the courts. From a franchisee’s perspective, a long drawn-out court fight will frequently destroy the business. Mediation significantly increases the chance the parties can save their relationship, thus saving the franchisee’s business, and preserving the business as a member of the franchise system. Mediation is also less public than litigation, making it easier for a franchisor to address individual issues raised by the franchisee. Besides, who is in a better position to determine what is best for the franchisor, the franchisee and franchise system; a judge who spends half his time dealing with criminal matters, jurors who want to get home for dinner, or the franchisor and franchisee, who have the most to gain, and the most to lose, in the dispute?

Statistics on the success of franchise mediation overwhelmingly support its use for resolving disputes. Mediation should not, however, be confused with “magic.” For mediation to be successful, both franchisor and franchisee must properly approach the mediation. This article will offer tips for making your next mediation a successful one.

Be Prepared

The more information you can get before entering mediation, the better prepared you will be for the various directions the mediation may take. Learn as much as you can about not only your own position, but also the merits of the other side’s position. Plan ahead who will present your side of the story, and who will play what roles in the mediation. As in any negotiation, you do not want to be surprised by someone on your own side of the table!

All Decision Makers Must Be Present

Mediation is most likely to produce an agreement when all decision-makers are present. Many successful mediations result in a resolution that was not previously considered by either party, and without all decision makers present, it is impossible to conclude on such a resolution. While it may be possible during the negotiation to consult with others who are not present, it is not possible for a decision maker to get the flavor of the discussions without being present.

If either the franchisee or franchisor is already talking to his lawyer, and if he is relying on his lawyer’s advice, then the attorneys should be present for the mediation. If they are not present, you risk having a reluctant party use the need to talk to his attorney as a way of preventing a final agreement from being reached. On the other hand, if the parties have not already turned to their lawyers, the matter might be better resolved by the business people without the need for lawyers.

If there is a guarantor of the obligations of the franchisee, or an influential spouse, then these people should also be present. Otherwise, you risk having an integral party to the discussions begin second guessing any settlement before the ink is even dry on the agreement. Likewise, from the standpoint of the franchisor, the person who will have to live with the consequences of any decisions reached in mediation, or the failure to reach a settlement, should be present.

Everyone Should Be “Invested” in the Process

Mediation will most often be successful when neither party can afford to walk away from the table without an agreement. In a franchise mediation, both parties have invested significant amounts in their business. Therefore, in many franchise mediations, both parties will already be in this position when they enter the mediation. If that is not the case, then the “investment” can come from simply requiring all parties to travel to a neutral site, a plane ride away, to mediate their dispute. Once people have an investment in the process, they will be reluctant to leave, and wash away that investment, without reaching an agreement.

Everyone Should Come with an Open Mind

If either party approaches mediation expecting the mediator to beat the other into submission, there is little likelihood the mediation will be successful. Likewise, if either party insists the other meet most of its demands before entering mediation, there is nothing to mediate. One of the benefits of getting everyone together is that frequently two heads are, indeed, better than one. Together, the franchisor and franchisee may come up with solutions that neither one had previously considered. Be open to creative solutions.

The Mediator Should Understand the Franchise Relationship

In personal injury litigation, neither party will ever see the other again. In a divorce case, neither party may ever want to see the other party again. However, in most franchise relationships, the parties are trying to preserve the relationship. Even when that is not the case, the franchise relationship is not an isolated relationship that exists in a vacuum, and the rights and reactions of other franchisees must be considered. You will increase the likelihood of having a successful mediation if the mediator understands franchising and the dynamics of the franchise relationship. You will also add a knowledgeable third “head” to the equation, who can help the parties find creative solutions to their problems.

The Mediator Should be Willing and Able to Persevere, and be Caring

There comes a time in nearly every mediation where both parties “just know” there is no common ground for settlement. In many of those instances, the parties want to continue, but simply do not know what to do. This is the reason you hired a mediator. It is extremely frustrating when both parties are ready and willing to take the time necessary to reach agreement, only to have the mediator throw-up her hands an hour or two after the process begins. Selection of a mediator is critical to the mediation’s likelihood of success. Interview your proposed mediator and satisfy yourself that the mediator cares about the process, and is willing and able to do what it takes to keep the parties moving forward.

Do Not Set Time Limits for the Mediation

The negotiating process takes time. It tends to move by its own momentum. Keep travel and personal schedules flexible so that you do not destroy the momentum of the negotiations by having to quit an hour or two before a settlement might have been reached. Very often, the parties will get most serious in the last hour of mediation, and in those instances, it will take an extra hour or two or three to complete an agreement that addresses all issues.

Do Not Walk Away Thinking You Are Close

If you walk away from a mediation, assume that a settlement will not be reached. That does not mean there will not be another opportunity at a later date. However, if you walk away thinking you are close, do not be surprised the next day, after the franchisee talks to his wife, or the senior franchisor executive talks to her president, and you find that concessions previously discussed are no longer viable. If you are close, either bridge the final gap at that time, or assume you will be starting over again at a future date.

Document Your Agreements

If you do reach an agreement, document it that day. You can sign a non-binding letter of understanding, or a formal, binding agreement, but the best time to flush out any misunderstandings is right then and there when the discussions are fresh in everyone’s mind. If you do sign an agreement intending to be bound, take the time to draft it carefully, because that agreement will be just as enforceable as one that was carefully considered in your attorney’s office.

Always Keep Your Goals in Mind

It is easy to get caught up in the momentum of a negotiation. Sometimes this means dwelling too long on issues that are really of no great concern to either party. Sometimes this means making more concessions than you can afford to make. In franchising, the issues are seldom simply money issues. In some mediations, the principal goal may be as simple as letting each party speak their mind. In others, the principal goal may be to save the relationship. In almost all cases, the goals will include avoiding the pain and costs of litigation. If you keep your goals in mind, and follow the foregoing tips, you will find mediation to be an excellent method of solving many of the disputes that arise between franchisors and franchisees.

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