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Many Canadian franchisors try to use alternative dispute resolution (ADR) to help them settle differences with franchisees more quickly, more privately and less expensively than going to court. The two most commonly used methods are mediation and arbitration. Since you may end up deciding to use an ADR method someday, it's important to know what to expect.
Mediation versus arbitration
In mediation, a neutral third party - the mediator - will help you and your franchisor communicate better and overcome some issues standing in the way of a settlement. A mediator can't decide anything or impose a settlement, so if you and your franchisor can't settle, you'll have to resolve the dispute using another method.
A neutral third party, the arbitrator, is also involved in arbitration. Unlike the mediator, however, he or she will hear evidence and arguments from you and your franchisor and impose a decision that is binding on both of you. While this many sound like going to court, you and your franchise are able to select the arbitrator and the rules are more relaxed than the rules for litigation, which often means it's faster and less expensive than going to court for a trial. It's also private, whereas a court trial is usually public.
When ADRs are most commonly used
A mediation can be attempted in just about any dispute, but it's particularity preferred when the franchisee and franchisor want to keep their relationship; there is a genuine misunderstanding; both parties are open-minded; or both parties want to work to keep costs, risks and consequences minimized.
Arbitration is useful for some disputes that are not usually considered suitable for mediation, such as breaches of non-competition clauses, termination of a franchisee's trademark use, or when the franchisor wants immediate relief to be granted by an arbitrator. It may also be used when the two parties don't want to keep their relationship but do want to avoid the price tag and risk of going to court.
Franchise agreement provisions regarding dispute resolution vary by brand. They may contain clauses that call for informal negotiation first, then mediation, then either arbitration or litigation after a specified period of time. Some provinces, such as Ontario, actually require the franchisee and franchisor to have a mandatory mediation session before they can go to trial.
An ADR can be an effective way of settling a dispute with a franchisor. Check the franchise agreements of the brands you're considering to see what their dispute resolution process is before you sign.