From time to time problems will arise and exist between a franchisor and franchisee. These problems or disputes may initially be solved through proper management and communication between the franchisee and franchisor. However, when these problems grow bigger and have not been properly handled, then very strong feelings and hostilities may develop between the franchisee and franchisor.

The franchisee may get to the point that they believe that they would rather terminate the relationship than continue. When this occurs, the franchisor must make some very important decisions relative to how to handle this situation and what to do. The franchisor must realize that litigation and arbitration may become very expensive, lengthy, and unpredictable as primary methods of dispute resolution. The court system may feel for the franchisee because of the economic power of the franchisor regardless of the franchise agreements or contracts. The basic legal method of dispute resolution would generally be: (1) mediation, (2) arbitration, and (3) litigation or court action.

The mediator is an individual who meets with both parties and analyzes the evidence and problems which each party presents. The mediator will discuss possible alternative solutions with each party and finally come up with a final conclusion or recommendation. Each party then has the right to accept or refuse this suggested resolution.

Arbitration is a system where an individual, the arbitrator, meets with both sides to discuss the merits of their position. The arbitrator will listen to each side, as well as bring them together to understand their agreements and disagreements. The arbitrator then makes a final decision. Both parties, prior to starting arbitration, have generally agreed to follow and accept the arbitrators decision regardless of the final ruling.

The court system is a "court of last resort." Generally, both the franchisor and franchisee seek not to use this method of dispute resolution. It is very costly and the decisions are not easy to predetermine.

The civil court system in the United States provides the opportunity for either the franchisor or the franchisee to seek redress from harms that the other has done. This allows the franchisee to terminate or to receive compensation for injury or harm which they have experienced in the franchising system. The final decision is rendered by a judge or jury and this decision must be accepted by both parties. This is a very time consuming and expensive process.

Probably the best method of dispute resolution is that of mediation. When this does not work, it is generally best to choose arbitration. Many franchisors now require, through their franchise agreement, that the final method of dispute resolution will be that of arbitration. In many cases, the franchisee has agreed to this upon signing the franchise contract.