What to Do When a Franchisee Breaches the Franchise Agreement in Vietnam?

In today’s fiercely competitive business landscape, franchising has become a popular strategy for business expansion, especially in sectors such as F&B, retail, and services. However, not all franchising relationships operate smoothly. Breaches of franchise agreements by franchisees are not uncommon, and if not addressed promptly, franchisors may face substantial financial loss, damage to brand reputation, and erosion of market trust.

Common Franchise Agreement Violations

To address a breach effectively, it’s important to identify what specific obligations the franchisee has failed to fulfill and the severity of the violation. Below are some of the most common breaches faced by franchisors:

Late or incomplete payment of franchise fees
Many franchisees deliberately delay or fail to pay initial franchise fees, ongoing royalties, or other contractual payments related to training or supply. This is a serious financial breach that can disrupt the franchisor’s cash flow and expansion plans.

Unauthorized operational changes or deviations from brand standards
Making unapproved changes to recipes, store design, staff uniforms, or offering off-brand products/services not only violates the agreement but also compromises the brand’s image across the entire network.

Failure to comply with reporting and internal control obligations
Most franchise systems require periodic reports on revenue, expenses, and service quality, as well as participation in inspections or evaluations. Non-compliance introduces financial and operational risks.

Continued use of brand after contract termination
Some franchisees continue to operate under the franchised brand after the agreement has expired or been terminated. This not only infringes intellectual property rights but also misleads consumers, leading to further damage.

Strategic Steps for Handling Franchise Breaches

Resolving franchise violations requires a strategic approach informed by commercial and IP law. Here are key steps to consider:

1. Assess and verify the breach
   Review the agreement, annexes, and operational manuals to determine the exact nature and impact of the violation. Gather evidence such as photos, videos, financial statements, and email correspondence.

2. Issue a formal notice and request remedy
   Regardless of how clear the breach is, begin with a formal written notice requesting remediation within a set deadline. This helps establish good faith and creates a legal basis for future proceedings.

3. Negotiate and mediate – if cooperation remains viable
   Franchise disputes are both legal and commercial. Mediation may help both parties save face and resume cooperation. However, the agreement must be revised with stricter terms to prevent recurrence.

4. Terminate the contract and claim damages
   If the breach is serious, the franchisor has the right to unilaterally terminate the contract and seek compensation. This must be executed according to legal procedures to avoid counterclaims.

5. File a lawsuit or request arbitration
   If negotiation fails, litigation or arbitration is the final option. Choosing the right court, legal basis, and calculating damages accurately will be key to success.

6. Handle public relations and protect the brand
   Aside from legal action, companies must also manage communication to safeguard their brand’s reputation among media, customers, and partners. Mishandling franchise disputes can cause long-term brand damage.

No franchise agreement is immune to risk. From the beginning, it is essential to build robust contracts with monitoring mechanisms and clearly defined penalties. Maintaining open communication and periodic training with franchisees will help align operations and reduce risks.

DEDICA Law Firm specializes in advising, drafting, and resolving franchise, IP, and commercial contract disputes. With a highly experienced legal team and deep understanding of Vietnam’s business environment, we are ready to support your sustainable franchise growth.

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