Franchise Arbitration Clauses Not Seeing Much Change
Dispute resolution is an important term in a franchise agreement. Franchise agreements can have forum selection clauses, arbitration clauses, and choice of law clauses, among other dispute resolution options. When Congress passed the Federal Arbitration Act, it brought the use of arbitration onto equal footing as other dispute resolutions options and the traditional venue of the courts. Not long thereafter, arbitration came to national prominence and became a popular option for franchisors to use in their franchise agreements.
Current research has shown that over the last ten years, the number of arbitration clauses in franchise agreements has remained relatively stable (in a little less than half of the franchise agreements). Today, some groups want to eliminate required arbitration clauses in franchise agreements. Currently, there is a bill in Congress: the Arbitration Fairness Act. One provision of the Arbitration Fairness Act would make mandatory arbitration clauses illegal in franchise agreements. This act is opposed by the International Franchise Association. Some franchisors, however, are moving away from arbitration clauses by their own choice; for example, General Nutrition Centers Inc. has quit using arbitration clauses in their franchise agreements.
If you are a franchisor, whether or not to use an arbitration clause is a matter of weighing a number of factors. Sometimes a choice of forum and choice of law provision may be the better option. These decisions are best made with the assistance of a franchise attorney. If you are a franchisee, have an attorney review the franchise agreement before you sign the agreement or renew your franchise agreement.
