Franchise arbitration clauses, explained

What a franchise arbitration clause does, how the Federal Arbitration Act treats it, how Item 17 discloses it, what AAA rules say about emergency relief, and where state law limits it.

Many franchise agreements say disputes must go to arbitration instead of court. Whether yours does, which provider it names, and where the hearing is held are all questions for the text of your own agreement. Item 17 of the Franchise Disclosure Document is where the franchisor had to summarize it. The FTC says Item 17 "states whether you have the right to go to court if you have a dispute with the franchisor, or must use arbitration instead," and the rule's table has rows for "Dispute resolution by arbitration or mediation," "Choice of forum" and "Choice of law." It is general information, and a lawyer licensed in your state can read your clause.

The Federal Arbitration Act

Section 2 of the Federal Arbitration Act says a written arbitration provision in a contract evidencing a transaction involving commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Section 3 says that when a federal suit involves an issue covered by a written arbitration agreement, the court shall, on application of a party, "stay the trial of the action until such arbitration has been had," provided the applicant is not in default. Section 4 lets a party aggrieved by another's refusal to arbitrate ask a federal court for an order, and if the court is satisfied the agreement is not in issue, it "shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement."

In practice, a court filing by a franchisee can be met with a request to send the dispute to arbitration. A related rule covers where a case is heard: the Supreme Court said in Atlantic Marine v. U.S. District Court (2013) that a valid forum-selection clause should be "given controlling weight in all but the most exceptional cases." That is a general federal rule, not specific to franchising, and state law can differ. The guide on forum-selection clauses covers it.

AAA rules, emergency relief and fees

If the clause names the American Arbitration Association's commercial rules, several rules matter. Rule R-39 lets a party that needs emergency relief before the panel is formed notify the AAA and the other parties in writing. The AAA then appoints a single emergency arbitrator "Within one business day of receipt of notice," who sets a schedule "within two business days of appointment." The arbitrator may enter an interim order if satisfied that "immediate and irreparable loss or damage shall result in the absence of emergency relief." R-39 applies to agreements entered on or after 1 October 2013 and does not apply to cases under the Expedited Procedures. Rule R-38 adds that a request to a court for interim measures is not "incompatible with the agreement to arbitrate or a waiver of the right to arbitrate."

Fees depend on claim size. Under the AAA schedule effective Sept. 1, 2025, the initial filing fee is $1,450 for claims under $75,000, $2,375 for $75,000 to under $150,000, and $3,675 for $150,000 to under $300,000, with larger tiers above. Final fees come due when the first evidentiary hearing is scheduled. Non-monetary claims carry a $4,825 initial fee and an application for emergency measures a $3,500 additional filing fee. These do not include arbitrator compensation. Because the figure varies with the claim amount, there is no fixed AAA fee. See AAA arbitration costs and the cost summary in franchise termination lawyer cost.

We did not find an AAA franchise-specific page, and not every franchise clause points to the AAA. Some name other providers or rule sets, so the fee schedule above applies only where the contract points to the AAA commercial rules.

Where state law limits the clause

Several state statutes allow arbitration but set conditions, or void out-of-state venue clauses. California says nothing in its franchise relations chapter limits the right to agree to binding arbitration, provided the standards applied are not less than the chapter's requirements, and it voids a venue clause restricting claims to a forum outside the state for a franchise business operating in California. Wisconsin's chapter, read from a mirror, does not apply to binding arbitration provisions if the good-cause criteria and relief are no less than the chapter provides. Rhode Island (archive copy) allows an arbitration clause on the same footing. Virginia's statute voids waivers but does not bar binding arbitration agreements.

Venue rules differ. Illinois voids out-of-state jurisdiction or venue clauses but says an agreement may still provide for arbitration outside the state (mirror text). Michigan voids clauses requiring arbitration or litigation outside the state (mirror text). Iowa voids clauses restricting jurisdiction to a forum outside the state. And Washington's Department of Financial Institutions states in an interpretive statement that it "will not register a franchise offering" with non-negotiable arbitration or mediation outside Washington unless the site is in Washington, mutually agreed at the time, or set by the arbitrator or mediator. That affects what franchisors may offer, not the clause in a franchise you already hold.

Mediation and injunctions

Some agreements require mediation before arbitration or suit. Costs vary by provider: AAA mediation carries a $350 non-refundable filing fee per party plus the mediator's compensation, and JAMS neutrals set their own hourly rates. One federal court, the District of Columbia, offers mediation without fees to the parties, though programs differ by court and that source is dated 2018. See mediation in franchise disputes.

Interim relief is a separate issue. The federal civil rules say a temporary restraining order issued without notice expires within a time the court sets, not to exceed 14 days, unless extended for good cause. The preliminary injunction guide explains how that interacts with arbitration clauses. For what to do with a notice in hand, read what to do after a franchise notice of default. The agreement controls your own clause and dates.

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