Prospects and Attorneys Often Ignore The Pitfalls of Arbitration

Editor's note: Although Mr. Robert Tingler is currently the Franchise Bureau Chief with the State of Illiniois Attorney General Office, his comments are not meant as any official statement but rather to help franchise owners and their attorneys better understand the philosophy and issues behind arbitration and state legislation.

Question: Your insights into arbitration versus litigation would be helpful. Can arbitration be used to circumvent the intent of state legislatures?

Answer: Franchisees and prospective franchisees should be concerned about arbitration, but most prospects and even a few attorneys do not evaluate the pros and cons of arbitration versus litigation when a purchase decision is being made.  Those who seek legal advice will frequently ignore the downside of arbitration because their focus is on buying into, not exiting from or fighting within the system.  Most regulators are not involved in arbitration and the Illinois Franchise Disclosure Act permits franchisors to require arbitration in any state they choose, which coincides with court decisions interpreting the FAA and the states’ inability to restrict arbitration venue.

Bob Tingler

You can access more information on our state's Attorney General's website from the electronic franchisee booklet, “Before You Buy” (pdf). There are several comments in this booklet about having an exit strategy and things to be informed about, such as dispute resolution jurisdiction, venue and choice of law.