Most franchise disputes do not begin with a dramatic breach. They begin with a change to the numbers: a lower commission rate, a new charge, a penalty for an administrative mistake, or a payment clawed back months after a sale. Each change on its own may look small. Together, they can turn a viable business into one that cannot cover its costs.
The recent Vodafone franchisee case brought this into public view. The former franchisees alleged, among other things, that commissions were cut and that substantial penalties were imposed for administrative errors. Vodafone rejected those claims and settled the case without admitting liability. Whatever the rights and wrongs of that case, the issues it raised are common across franchising. This article looks at the warning signs and what you can do about them.
The warning signs
- Commission or margin cut with little notice, or applied to sales you have already made
- New fees or charges that were not in the agreement or the figures you were shown before signing
- Fines or penalties for administrative errors, often deducted directly from what you are owed
- Clawbacks, where money already paid to you is taken back later, for example if a customer cancels
- Targets raised, territory reduced or products withdrawn without discussion
- Changes made by updating the operations manual rather than the agreement itself
- Encouragement to borrow, extend overdrafts or take on personal debt to keep trading
- Statements that are hard to understand or reconcile with your own records
Can a franchisor change how you are paid?
It depends entirely on your franchise agreement. Many agreements give the franchisor wide powers to change commission structures, fees, the operations manual or the way the system works. Some limit those powers, require notice, or require changes to apply to the whole network equally.
Even where a power to make changes exists, it is not always unlimited. In some circumstances, courts have been prepared to imply that a discretion of this kind must be exercised honestly and rationally, rather than arbitrarily. Whether that applies to your agreement depends on its wording and the circumstances, and it is not something to assume without taking advice.
The key questions are usually:
- What exactly does the agreement say about payments, commission and fees?
- Does it allow the franchisor to change them, and on what terms and notice?
- Is the change made through the agreement, a formal variation, or the operations manual?
- Does the change apply to everyone, or only to some franchisees?
- Were you told something different before you signed, in writing or at meetings?
Fines, penalties and clawbacks
Deductions for errors and clawbacks of earlier payments are common in models where the franchisee sells on the franchisor's behalf and is paid by commission. They can be legitimate, for example where a sale is genuinely reversed. Problems arise when they are frequent, hard to check, or out of proportion to the error.
Ask for a breakdown of every deduction: what it was for, which clause allows it, and how the amount was calculated. Compare it with your own records. If you think a deduction is wrong, dispute it in writing straight away and keep a copy. Patterns matter: a schedule of deductions over months is far more persuasive than a single complaint.
Pressure to borrow
If your business can only keep going by taking on more personal debt, stop and take stock before you sign anything. Borrowing can buy time, but if the underlying problem is the way you are paid, it can also deepen the hole. Many franchisees have also given personal guarantees, which means business debts can follow them home.
Get an honest view of the numbers and of your position under the agreement first. That might be uncomfortable, but it is far better than discovering the problem a year and a loan later.
What to do now
- Find your agreement, any variations and the current operations manual. Note the clauses on payments, changes, termination and restrictions after you leave.
- Keep paying and trading unless you have taken advice. Stopping payments can put you in breach and give the franchisor grounds to terminate.
- Start a dated record: every change to your pay, every deduction, every relevant email and call, and who said what.
- Gather what you were shown before signing: the prospectus, projections and any figures given at meetings.
- Raise concerns in writing, calmly and on the facts, and ask for explanations and breakdowns.
- Talk to other franchisees in your network if you can. Shared experiences can show whether a problem is isolated or widespread.
- Get an honest, independent view of whether you have a case before you spend heavily on solicitors.
Why evidence comes first
Disputes of this kind are decided on documents, not on how unfair a situation feels. A clear chronology, linked to commission statements, notices and correspondence, makes it far easier to negotiate with a franchisor, to support you at mediation, or for a solicitor to advise quickly if the matter goes further.
That is the core of what we do. We gather the evidence, establish the correct and vital facts, and tell you honestly whether you have a case. Then we work with you to put it to your franchisor, all before you need a solicitor. If it does go legal, your evidence pack can save thousands of pounds in legal fees.
Talking to your franchisor
Many problems are resolved by a clear, well-prepared conversation. Before you meet, write down the specific changes that have affected you, the amounts involved and what you want to happen. Bring copies of the relevant clauses and statements. Keep the tone calm and factual, and follow up any meeting with an email confirming what was said and agreed.
If the franchisor will not engage, or the conversation goes nowhere, check your agreement for a dispute resolution clause. Many agreements require negotiation or mediation before court. Mediation, with an independent mediator, can be a quick and confidential way to reach a settlement, and it works far better when your evidence is already in order.
Time can matter
Some rights have deadlines. Claims for breach of contract generally have to be brought within six years in England and Wales, and some agreements set shorter notice periods for raising disputes. Certain claims, such as those available to commercial agents, must be notified within a year of the relationship ending. If you think something is wrong, do not leave it.
Talk to us in confidence
If any of these warning signs sound familiar, call or email in confidence. Initial discussions are free, and we will tell you plainly where you stand.