Rights in a California Franchise Dispute

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Many small business owners choose to open a franchise for various reasons. Franchise arrangements allow a new, inexperienced business owner to experience some of the benefits of small business ownership without having to completely “go it alone.”

The franchisee – the small business owner – gets to use certain tangible and intangible property of the franchisor – in return for the payment of a franchise fee. Like other business contracts, however, the franchisor and franchisee do not always see eye to eye when it comes to the contract governing their relationship. As a small business owner, it is important to know that during these
franchise disputes you have rights.

Rights of the Parties in a California Franchise Dispute
A California franchise dispute most often arises when the franchisor and franchisee cannot agree as to what the essential terms of the franchise agreement require each of them to do. Parties to a franchise dispute may choose to resolve their disagreement through one or more alternative dispute resolution methods (such as mediation), or they may choose to litigate the dispute.

Although parties who litigate their dispute generally have more rights than those who choose to settle their differences outside the legal system, the parties to a California franchise dispute have certain rights:

-The right to challenge (in court) the enforceability of a mandatory arbitration clause;

-The right to seek monetary damages from the other party if that other party is determined to have violated the terms and conditions of the franchise agreement;

-The right to contest the forum for resolving the dispute; that is, the right to ask a California court to determine whether the dispute should be resolved in California and according to California laws.

Many franchise agreements have clauses that appear to “require” the parties to resolve any dispute outside of court through arbitration or mediation. Doing so rarely benefits the franchisee. It is crucial, therefore, for small business owners involved in franchise disputes with a franchisor to have their franchise agreement reviewed by an experienced small business attorney before resolving their dispute through these alternative dispute resolution methods. Once a franchise dispute has been resolved through arbitration or mediation, any rights the aggrieved party may have had but failed to exercise are considered to have been given up, and there is usually very little that can be done if one party is later dissatisfied with how the dispute was settled.

Small business attorneys are thoroughly familiar with the statutes and regulations that pertain to franchise agreements. [They can help] protect your legal rights so you can focus on building and running your business.

James H. (Jim) Gulseth was born and attended high school in Devils Lake, North Dakota and graduated with an A.B. degree from the University of California at Berkeley. He earned his JD degree at the University of California Hastings School of Law in San Francisco. He is a member of the Corporations, Business Transactions, Securities and Tax and Intellectual Property Sections of the State Bar of California and is a member of the State Bar of California, the Alameda County Bar Association, and a member and past President of the Eastern Alameda County Bar Association.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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