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Arbitration: Is the Silver Bullet a Dud?

By Michael Bowen
November 29, 2007

For roughly 25 years franchisors have fought hard in courtrooms, in the lobbies of Congress, and at the bargaining table to ensure that that disputes with franchisees would be resolved by arbitration. In large part, they have succeeded. The Supreme Court has repeatedly reaffirmed both the enforceability of arbitration agreements and the desirability of arbitration itself, despite hostile state statutes and stubbornly recalcitrant state courts. Congress has turned a distracted, if not an entirely deaf ear to the efforts of franchisee- and trial lawyer-pressure groups to take franchise agreements outside the protection of the Federal Arbitration Act for all practical purposes. And arbitration provisions have become a standard term in franchise agreements.

Now, however, on the strength of a substantial body of real-world experience with arbitration as a dispute-resolution norm, many franchisors are asking whether all this effort has really paid off after all ' whether, in fact, their dogged pursuit of arbitration was actually a mistake. Doubts are emerging because the well-known downsides associated with arbitration seem far more worrisome as concrete realities than they did as abstract analytic factors, and because new concerns have appeared as arbitration has become more common in the franchise universe.

Downsides Recognized from the Beginning

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