Hotel Franchise Agreements: Mediation, Arbitration Or Litigation?

Hospitality Net:

Many hotel franchise agreements stipulate arbitration over litigation. At first glance, this may appear to be more beneficial to franchisees but nothing could be further from the truth. Compulsory arbitration protects franchisor interests while diluting franchisee remedies.

What are the disadvantages of arbitration?

First, in court you can obtain a jury trial assuming that you have not waived this right elsewhere in the agreement. Having a dispute resolved by a jury of your peers is a valuable right which should not be underestimated. Arbitrators are usually lawyers who may be friendly with your franchisor or its attorneys since arbitration clauses typically require arbitration to take place in the city where the franchisor’s headquarters are located.

Second, arbitration is very expensive, even as compared to litigation. Unlike state and federal courts where judges are compensated by taxpayer dollars, you must pay the arbitrators by the hour (from approximately $250 to 500 per hour), and must pay significant additional filing and administrative fees for the arbitration process.

Third, the discovery process, during which each side gathers its evidence (depositions, documents, etc.) for a trial, is very limited. This aspect hurts a franchisee disproportionately because he or she has the ‘burden of proof,’ and usually needs additional facts and documents in possession of the franchisor to build the case.

Fourth, the normal rules of evidence and procedure do not apply in the same way as they would in federal or state court. Instead, the law affords the panel a great deal of flexibility and discretion in conducting the arbitration hearing, and a reviewing federal court will rarely, if ever, reverse the panel’s decision – even if it is legally and/or factually incorrect.

The bottom line is – do not agree to arbitration if you can possibly avoid it. Read more.