Crisis Erupts: 37 Franchisees Stage Collective Protest, Enterprise on the Brink of Collapse

During the COVID-19 pandemic, a well-known catering chain enterprise faced the most severe survival challenge since its establishment. 37 franchisees, citing "a sharp drop in customer flow and unsustainable operations", collectively demanded the termination of contracts and a full refund of franchise fees totaling 8.9 million yuan.

This dispute quickly escalated from a legal issue to a social incident: some emotionally charged franchisees took extreme actions of besieging the headquarters, resulting in disrupted food ingredient procurement channels for 20 directly-operated stores of the enterprise and bringing daily operations to a standstill. More critically, negative public opinion fermented rapidly on social media, inflicting heavy damage on the brand reputation. If mishandled, this catering enterprise, which has been painstakingly operated for more than a decade, may face a catastrophic collapse of its chain system.

Appointed in Crisis: Dispute Mediation Team Intervenes Urgently

At the critical juncture of the crisis, our firm's dispute mediation team accepted the enterprise's entrustment and rushed to the scene immediately. What we faced was not only complex legal disputes, but also a chaotic situation intertwined with survival anxiety, collapsed trust and emotional confrontation.

The team formulated a three-step emergency strategy of "Stopping the Bleeding - Guiding Emotions - Rebuilding Trust":

• Stopping the Bleeding：Immediately coordinate with the police to maintain order and resume food ingredient supply for directly-operated stores
• Guiding Emotions：Establish a dialogue platform to transform confrontation into negotiation
• Rebuilding Trust：Plug loopholes at the institutional level and restore franchisees' confidence

In-depth Diagnosis: Contract Loopholes as the Root Cause of the Dispute

The team conducted a comprehensive review of the franchise contracts signed by both parties and identified the deep-seated hidden danger of this crisis: the contract did not clearly specify specific handling clauses in the event of "force majeure".

In the face of this sudden public health incident (COVID-19), franchisees had to pay rent and employee salaries as usual while experiencing a cliff-like drop in revenue, and their survival pressure was conceivable. The lack of contractual provisions led both parties to a deadlock of "no legal basis to follow" on the issue of risk sharing - this is the fundamental reason for the outbreak of the dispute.

Targeted Measures: Precise Resolution Plan with One Store One Policy

Based on an in-depth investigation of the operating conditions of each franchise store, the team formulated differentiated classified disposal plans to avoid secondary conflicts caused by a "one-size-fits-all" approach:

1. Closed Stores: A Flexible Exit Mechanism

For the 12 stores that were unable to sustain operations and had completely closed down, the core demand was to "recover the franchise fee and exit gracefully". After multiple rounds of arduous negotiations, a consensus was reached:

• Installment Refund：The total franchise fee of 8.9 million yuan will be refunded in 12 installments to ease the enterprise's capital pressure
• Retention of Brand Usage Right：Franchisees are allowed to continue using the brand name for 2 years, leaving room for them to restart operations in the future
• Amicable Breakup：Both parties sign a settlement agreement and promise not to make negative remarks to the outside world

2. Operating Stores: Support Plan of Capital Injection and Empowerment

For the 25 stores that were still struggling to maintain operations, the core demand was to "survive and pull through". The team tailored support measures:

• Fee Reduction and Exemption：Waive management fees for 3 months, totaling about 680,000 yuan
• Contract Term Extension：Automatically extend the contract term by 1 year to give more time for recovery
• Capability Empowerment：Provide additional professional takeaway operation training to help franchisees develop online revenue channels

Trust Reconstruction: Transparent Communication and Institutional Guarantees

After the release of the classified plans, making franchisees believe and accept them became a new challenge. The team broke the deadlock with "transparency" and rebuilt trust through a series of measures:

5 Online Mediation Meetings to Resolve Franchisees' Misgivings

The team organized 5 consecutive online mediation meetings to respond one by one to franchisees' concerns about capital safety, operational support, etc. The meetings disclosed the details of the 2 million yuan fund supervision account set up by the headquarters, allowing franchisees to see firsthand that the refund funds were guaranteed and the commitments could be fulfilled.

Supplementary Agreement to the Franchise Contract: Plugging Loopholes from the Source

More crucially, the team took the lead in formulating the Supplementary Agreement to the Franchise Contract, building a firewall for future risks at the institutional level:

• Rent Sharing Mechanism：Clearly stipulate that the headquarters shall bear 20% of the rent in the event of force majeure such as the pandemic
• Minimum Revenue Guarantee Clause：Set a minimum revenue guarantee line, and the headquarters will provide corresponding support when the revenue is below the line

• Pre-dispute Resolution Procedure：Agree on a mediation-first procedure to avoid direct escalation of conflicts

Successful Conclusion: Resolving 37 Disputes in 3 Months

After 3 months of systematic resolution, all 37 franchise disputes were successfully resolved through mediation, with none proceeding to litigation. The extreme acts of besieging the headquarters were completely quelled, the food ingredient procurement channels were fully restored, and the brand reputation was gradually repaired.

Value Upgrade: A Positive Transformation from Crisis Outbreak to Standardized Development

This crisis ultimately became a turning point for the enterprise's transformation and upgrading. At the end-of-year inventory, a set of data witnessed the enterprise's rebirth from the ashes:

• Stable and Progressive Franchise System：Not only did we stabilize the existing franchisee team, but also added 15 new franchise stores
• Revenue Growth Against the Trend：Annual revenue increased by 22% compared with pre-pandemic levels, hitting a record high
• Filling Institutional Shortcomings：The new version of the franchise contract has become an industry model, attracting more high-quality franchisees to take the initiative to contact us

Benchmark Significance: Providing a Model for Chain Enterprises to Address Mass Disputes

The successful resolution of this case has provided a replicable model for chain-operated enterprises to handle mass franchise disputes. It proves that in the face of a crisis, professional, patient and creative mediation work can not only turn hostility into friendship, but also promote enterprises to complete institutional upgrading in the throes and achieve a positive transformation from "crisis outbreak" to "standardized development".

Our firm's dispute mediation team will continue to use professional legal wisdom to help more enterprises forge ahead steadily in the storms.