The franchisor-franchisee relationship is built on a mutual agreement: the franchisor provides a proven business model, brand, and support, while the franchisee operates the business under that system. While this offers significant advantages, such as brand recognition and operational guidance, conflicts can still arise. Misunderstandings, unmet expectations, or unclear terms can lead to costly disputes that impact both parties. Understanding the most common sources of tension will help you protect your investment, strengthen your relationship with the franchisor, and set yourself up for long-term success.
12+ Common Franchise Disputes (And How to Avoid Them)
#1 – Franchisor Misrepresentation & FDD Inaccuracies
One of the most serious disputes arises when a franchisor provides misleading or incomplete information during the sales process. This includes inflated earnings, undisclosed past litigation, or verbal promises that differ from the Franchise Disclosure Document (FDD). These misrepresentations can lead franchisees to make costly decisions based on inaccurate expectations.
How to avoid it: Review the FDD carefully with a qualified franchise attorney, and rely only on written statements—not verbal assurances—when evaluating a franchise opportunity. For more detailed information on Franchise Disclosure Documents, visit the FTC’s Franchise Rule Compliance Guide.
#2 – Breach of Contract & Operations Manual Violations
Franchisees are legally bound to uphold the terms of their franchise agreement, including royalty payments, reporting requirements, and the operational procedures outlined in the manual. Failing to comply—whether intentionally or through oversight—can result in breach of contract claims and legal consequences.
How to avoid it: Regularly review your agreement and operations manual, ensure timely royalty payments, and clarify any updates to procedures with the franchisor.
#3 – Territorial Rights & Restrictions
Territorial disputes often involve overlapping franchise zones or restrictions that limit where and how a franchisee can operate. Post-termination non-compete clauses may also become points of contention.
How to avoid it: Ensure your exclusive territory and any restrictive covenants are clearly negotiated and documented in the franchise agreement.
#4 – Royalty Disputes & Pricing Concerns
Franchisees may disagree with how royalty payments are calculated or object to mandatory pricing rules that could violate antitrust laws or hurt profitability.
How to avoid it: Confirm all royalty and fee structures in writing and consult a legal expert about local pricing regulations and competition laws.
#5 – Advertising Fund Misuse
Some franchisees feel that advertising contributions are being mismanaged or disproportionately benefit other locations or regions.
How to avoid it: Request regular reports on how ad funds are spent and push for transparency from the franchisor on marketing expenditures.
#6 – Support Gaps & Communication Issues
Lack of training, poor onboarding, or inconsistent communication can cause frustration and reduce a franchisee’s chances of success.
How to avoid it: Establish clear expectations for support, document all gaps or issues, and maintain open communication with the franchisor throughout the partnership.
#7 – Brand Standards and Quality Control Issues
Brand consistency is vital to customer trust and franchise success. Problems occur when franchisees use unapproved vendors, alter product offerings, or stray from the expected customer experience. This damages both the reputation and relationships across the network.
How to avoid it: Follow brand-approved systems, maintain open communication about expectations, and participate in routine audits to ensure quality control.
#8 – Product Supply and Vendor Disputes
Problems may arise if franchisees are locked into using certain vendors with high prices or unreliable delivery.
How to avoid it: Negotiate vendor flexibility in your agreement or push for alternate supplier options when performance issues occur.
#9 – Unauthorized Use of Trademarks or Marketing Materials
Franchisees may unintentionally misuse brand assets or launch marketing campaigns that aren’t pre-approved.
How to avoid it: Always seek written approval for any marketing initiatives and adhere to brand usage guidelines to avoid trademark violations.
#10 – Renewal and Termination Conflicts
Franchisees can face serious challenges if a franchisor denies renewal, enforces an automatic extension, or tries to terminate the agreement without valid cause. These conflicts can jeopardize the franchisee’s investment, disrupt business operations, and potentially lead to litigation
How to avoid it: Track key dates in your agreement, know your rights and obligations, and document all communications. If termination is threatened, consult a franchise attorney immediately. For more on this topic, read Is It Possible to Get Out of a Franchise Agreement?
#11 – Resale and Transfer Disputes
When selling a franchise, disputes can occur if the franchisor denies the sale or imposes unexpected conditions.
How to avoid it: Ensure your agreement outlines a clear resale process and obtain franchisor approval protocols in writing ahead of time. For further reading: The Pros and Cons to Buying a Franchise Resale
#12 – Franchisor Discrimination or Selective Enforcement
Some franchisees may feel targeted if rules are inconsistently applied or penalties are issued unfairly compared to other owners.
How to avoid it: Maintain detailed compliance records, communicate concerns respectfully, and address perceived inconsistencies early with franchisor leadership.
Thinking About Franchise Ownership
Franchise disputes can be costly and disruptive, but many are preventable with the right knowledge and preparation. Understanding how to avoid common issues can help you protect your investment and relationship with your franchisor.
Thinking about joining a franchise? FranNet can help you navigate every step of the process—including spotting red flags before they become problems. Schedule a free consultation with an expert franchise consultant today.