Michael F. Millerick Franchises and Franchising Law Blog on Lawyers.com

Two significant events have, and are occurring, which will change the entire landscape concerning how franchise disputes are going to be resolved.

Over one half of existing franchise agreements include arbitration clauses which require franchisees and franchisors to resolve most of their disputes where the franchisor's place of business is located and before professional arbitrators who presumably have experience dealing with the same types of issues on repeated occasions. Some find this comforting and cost effective while others think it unfairly favors franchisors.

Reacting to the "consumer" oriented nature of the franchisees’ complaints - usually prompted by those who have lost their disputes in arbitration - the U.S. Legislature now has before it two pending bills which will invalidate all arbitration clauses in existing and future franchise agreements as a matter of law. A recent event has made the passage of these bills even more likely.

The U.S. Supreme Court in The-Rent-A-Center, West, Inc. v. Jackson, in a sharply divided Court, recently sided with a corporate franchisor upholding a provision in its standard contract that the arbitrator be the one to decide whether the arbitration provision itself is, or is not unconscionable, rather than a court of law. In a convoluted opinion, the Court's conservative bloc allowed freedom of contract to reign, even though the decision will undoubtedly lead to more litigation because individual portions of arbitration clauses will have to be evaluated on a piecemeal basis. There was a spirited dissent offered to this essentially pro-business opinion which is the reason why the legislation now being contemplated becomes even more likely to be passed.

Now, rather than carefully considering whether franchise agreements between two commercially independent and financially interested parties should be upheld in their entirety, inclusive of their arbitration provisions, the current legislature seems likely to react negatively to the Supreme Court's opinion and adopt the legislation because the opinion is viewed as pro-business and the legislation seems to favor franchisee "consumers'. When that happens, the many existent franchise agreements' venue selection clauses, choice of law provisions and the interplay between those provisions and the franchisee's state laws, which in some cases invalidate those same provisions, will have to be re-evaluated by practitioners, interpreted and enforced anew. Thus, rather than the legislation simplifying things, both franchisees and franchisors can look forward to a more complicated and litigious future, which will likely make the dispute resolution process far more expensive, hardly the rationale behind the legislation.