Canada: Your Franchisees Are In The Process Of Organizing An Association. What Do You Do? Panic, Retaliate, Negotiate?

Franchising Bulletin
Last Updated: October 17 2019
Article by Jean H. Gagnon

It can't be repeated often enough: managing a franchise network requires skills and abilities that are quite different from those required for other business models.

Among other things, a franchisor's executives must manage a thoroughly unique relationship with their network's franchisees. On the one hand, you can't treat franchisees like employees. After all, franchisees are entrepreneurs who have made a significant investment in their business and assumed the concomitant risks while trying to make a living... and a profit. On the other hand, they cannot be left to their own devices because each of them is a link in the network developed and managed by the franchisor.

Several works describe in detail the characteristics of franchise network management, including my latest book, Le partenariat stratégique: L'ingrédient clé du succès en franchisage, 2e édition  (Éditions Yvon Blais, October 2018) (only available in French).

One of the risks for a franchisor that fails to properly manage and nurture adequate relationships with its franchisees is that its franchisees decide to organize an association whose goal is to join their forces and resources and, with one voice, attempt to make themselves heard by their franchisor (a bit like a union).

What should a franchisor do when it learns that its franchisees are in the process of organizing such an association?

Is it time to panic? Is it time to begin legal action against some of the franchisees (especially the promoters of the association) or to try to evict them from the franchisor's network? Should the franchisor ignore or acknowledge the new association? Should the franchisor negotiate or should it refuse to negotiate with the association's representatives?

First of all, it is worth mentioning that, for years now (and even decades), some large franchisors have, over time, established collaborations with franchisee associations. Even if occasionally difficult, these collaborations have become profitable for the franchisors' entire networks.

Therefor, a franchisee association can very well become a useful partner in a network's evolution and growth that respects both the franchisor and the franchisees.

On the other hand, franchisees frequently decide to organize an association for a number of reasons. For example:

  • they may feel that their questions, concerns, problems, challenges and issues are not properly heard their franchisor;
  • they might doubt the franchisor's ability or true desire to support them, particularly in difficult situations;
  • they might question the franchisor's transparency, integrity or real motivations;
  • they might experience genuine insecurity due to market difficulties, decisions made by the franchisor or changes affecting the franchisor or the network;
  • they may not understand or accept some of the franchisor's decisions; or
  • they might lose confidence in the franchisor's willingness, ability and skill to move the network forward while also supporting the franchisees success.

The franchisor's reaction and the first actions it takes upon learning that its franchisees are in the process of organizing an association will often be deciding factors for the network's very survival.

In some situations, the franchisor's delayed reaction or, conversely, ill-timed reaction may well result in the speedy deterioration of franchisor-franchisee relationships and lead to an open confrontation, sometimes even in court.

Since each set of circumstances is unique, there is no magic bullet for a franchisor who must deal with such a situation.

That said, here are three practical tips for how to prevent a situation from rapidly degenerating to the detriment of the entire network:

THREE PRACTICAL TIPS

Act proactively as quickly as possible

It is too easy for a franchisor to be lulled into thinking that things will work out by themselves or that time will take care of a problem.

Too often, one of the very reasons that led the franchisees to want to organize an association is that the franchisor has underestimated the seriousness of their concerns.

In general, the fact that the franchisees decided to organize is a sign that there was a real and serious problem within the network (even if it was only a matter of franchisee-franchisor communications).

So, the franchisor should act quickly to clearly identify and understand the problem that led the franchisees to want an association and to get a solid grasp of the franchisees' real concerns in order to develop a plan to correct the problem and establish, or re-establish, genuine (two-way) communication with its franchisees.

Avoid hasty decisions and actions

Important as it is for the franchisor to act quickly upon learning that a franchisee association is organizing, it is as important to avoid inopportune decisions or actions that, more often than not, swiftly aggravate tensions.

When it comes to the nascent association, it might be tempting, and seem simple, for the franchisor to "nip it in the bud," either by retaliating against the franchisees identified as the instigators (for example, by terminating their franchise contracts, closely monitoring them or taking legal recourse) or by contacting certain franchisees to discourage them from participating in the association, or by stonewalling any efforts by the association to communicate with the franchisor.

Even if such actions may occasionally (but rarely) proved fruitful in ending the franchisees' efforts to set up an association, they don't address the actual problem within the network, i.e., the problem that led the franchisees, or at least some of them, to want to organize such an association.

In consequence, they don't solve the problem and, at best, only postpone the inevitable.

Have someone experienced in franchising and conflict resolution at your side

The fact that the franchisees have gotten to the point of organizing an association is a symptom of an issue within the franchise network that the franchisor has not as yet been able to resolve.

In addition, at that point, the franchisees' criticisms generally target the franchisor's executives, which often prompts the latter to adopt a defensive and, in a mirror image of the criticism, aggressive posture.

The involvement of a credible third person who (a) up to the point when the situation deteriorated, has not been involved in the problems, issues and concerns that gave rise to it, (b) possesses real franchising skills, particularly in regard to the management of the franchisor-franchisees' relationship, and, (c) also has negotiating and conflict and dispute resolution skills (i.e., mediation skills) can help dispel the siege mentality that has taken root. This person will be able to guide the franchisor and his franchisees to better understand each other and to collaborate to find real solutions to the problems affecting the network rather than trading criticisms and accusations that will only widen the divide between them.

Moreover, the presence of a credible expert can foster the participation of the franchisees, who otherwise might feel intimidated, and mitigate existing rivalries within the network. Also, when there is a feeling of distrust toward the franchisor and its executives, an external expert can (a) institute or boost confidence in the process, (b) foster a better, shared understanding of the situation, and (c) accelerate the process of settling the franchisees' complaints and concerns.

Fasken has all the expertise and resources required to advise and support you in all aspects of your network's start-up, management and growth, including in managing the relationships with your franchisees and with any franchisee association or group anywhere in the world.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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