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Congress is still considering the arbitration fairness act, which could include a provision banning mandatory arbitration in franchises. This hasn't gained a lot of traction in the franchisee world because the thinking behind it is fundamentally misguided.
Arbitration, done right, is cost-effective, swift, and procedurally fair. You can pick your arbitrator after extensive disclosure, which means you can go a long way toward picking someone without a hometown bias even if arbitrating in the franchisor's home city. On the other hand, being forced to litigate in court in the franchisor's home venue means a long, expensive battle with likely hometown bias. If mandatory arbitration is banned, franchisors will require that disputes be resolved in court, without a jury, in their hometown. Why would any franchisee want to encourage this, which would be the almost certain result of the Arbitration Fairness Act?
Franchisee advocates say that arbitration should be discretionary. That works fine with a fair franchisor who looks to resolve disputes quickly, inexpensively, fairly, and in good faith. But franchisees don't need protection from these franchisors. They need protection from franchisors who want to beat franchisees into the ground through expensive, drawn-out court proceedings.
Franchisees also complain about "repeat player bias," that arbitration organizations favor the big franchisors who put them into their contract. That makes little sense to me. Arbitration organizations should not be making any decisions on a case other than on an occasional non-determinative preliminary procedural matter. Organizations administer; arbitrators decide. Further, arbitrator bias should be able to be dealt with by full disclosure of conflicts. Franchisees may choose not to pick any arbitrator who has any relationship to the franchisor through business, social contacts, or former arbitration. If the organization does not offer that level of selection, the procedure is subject to judicial attack as conflict disclosure and management is one of the few areas that courts step into strongly.
I also question how Congress feels about mandatory arbitration in the franchise area now that Congress itself selected mandatory arbitration for resolving disputes related to the automobile dealer terminations. Having done some preliminary research on these arbitrations, my sense is that they proceeded quickly, inexpensively, and fairly. I also have the sense that they worked out very well for dealers. If terminated dealers instead would have had to fight GM and Chrysler in court, and possibly in an unfriendly venue, how many dealers would have simply folded and walked away? How many would have spent so much on the litigation that it would mean wagering all their savings for the chance to save their dealerships?
So if franchisees want fairness in dispute resolution, four things would help them: First, arbitration would be in their home city or a neutral city, or there would be some sort of cost-sharing imposed on the non-traveling party, or there would be the equivalent of a coin toss to decide venue. Second, arbitration organizations would be required to have a full disclosure policy along with a panel and strike policy that allows parties to choose someone with no connection to the franchisor. (The AAA provides this, for example.) Third, consolidation and class actions would not be prohibited. And fourth, and I realize I may be in a minority of one on this, franchisors would be required to arbitrate disputes. Focusing on these issues makes far more sense than does pressing ahead on the harmful Arbitration Fairness Act.