Are Franchise Application ADR Provisions Enforceable?

ADR is an abbreviation for alternative dispute resolution. Arbitrate and mediate are types of alternative dispute resolution.

Following the general rule, the court in the case of Doctor’s Associates, Inc. [Subway franchisor] v. Alemayehu held that arbitration and mediation agreements are enforceable if there is adequate consideration for a binding agreement and the intent of the parties is to arbitrate or mediate disputes.

Consideration is required for arbitration and mediation to provisions to be binding.  For without consideration there can be no binding agreement or contract.

“consideration may consist of a performance or of a return promise,” 

Restatement (Second) of Contracts § 71, cmt. d 

This case involved an arbitration provision in Subway’s prospective franchise application. Alemayehu was seeking to purchase a Subway franchise via a transfer from another Subway franchisee and thereby was required to complete a franchise application.    Alemayehu’s application was ultimately denied, and Alemayehu was found unfit to be a Subway franchise.  Alemayehu filed suit against Subway. 

The court held that Alemayehu’s claim must be held via arbitration.  Alemayehu submitted the application in exchange for Subway reviewing of the application and Alemayehu candidacy to become a Subway franchisee. 

The court held that an arbitration clause with the franchise application was enforceable.