Understanding Conflict in the Franchised Restaurant Industry: Insights from Court Records

Abstract

Relationships between franchisees and franchisors are susceptible to conflicts. This exploratory study employed a content analysis using a data triangulation of New York court records (23 cases, 3 dismissed) spanning from 1957 to 2016 and IFA corporate databases to explore the causes of conflict in the franchised restaurant industry. The findings revealed that the courts dismissed three lawsuits on jurisdictional grounds at the preliminary litigation stage. Out of the 20 cases, the courts found that 13 cases filed by the franchisees had no meritorious causes of action. This leads to a belief that the franchisees did not obtain sufficient advice from their attorneys or that they did not arbitrate their conflicts before filing the lawsuits. The primary theoretical implication of this study is that parties in franchising may recognize the red flags in conflict before advancing to the litigation stage. This would help the parties of interest to mitigate the tension in their relationship. Among the practical implications of this study include the recommendation for a better franchising regulation which safeguards the interests of all stakeholders. Policymakers should consider mandating arbitration clauses in the franchising agreements to balance the relationship between franchisees and franchisors.