The Cheesecake Shop strikes deal with rogue franchisee

The Cheesecake Shop has reached a settlement with disgruntled franchisee Brad Skuse following mediation, but an industry expert says the situation should serve as a warning for other small businesses.

Skuse, who has operated a franchise in South Australia since 2004, set up a website called cheesecakeshoplies.com, accusing the company of badly treating its franchisees.

According to Skuse, all franchisees are being forced to refurbish their stores at a cost of up to $100,000 – a claim The Cheesecake Shop has confirmed.

Earlier this week, it was revealed Skuse and the company would go through mediation, which took place yesterday, during which time cheesecakeshoplies.com was frozen. The site has since been terminated.

Skuse told StartupSmart a settlement has been reached as a result of the mediation, which he is “extremely happy” with.

“I have reached a commercial settlement with the franchisor, the terms of which are confidential. I am bound not to reveal the terms and if I do so, I will breach the terms of settlement,” Skuse said.

Ken Rosebery, general manager of The Cheesecake Shop, says the company is happy the dispute has been resolved, issuing the following statement:

“The dispute between the Cheesecake Shop Pty Ltd and Bradley Skuse and B & F Skuse Pty Ltd has settled and it is a term of settlement that Brad Skuse de-register the website and agrees not to register the same or any similar website in the future.”

Neither party would offer any other details on the settlement, so it’s unclear whether it included any financial assistance from the company for Skuse to refurbish his store.

Jason Gehrke, director of the Franchise Advisory Centre, says the commercial settlement could mean anything, including an exit by Skuse from the franchise.

“If I was the franchisor and I had a franchisee engaging in a vitriolic campaign to damage the brand, I would be moving to preserve the integrity of the brand and the other franchisees by seeking to bring this franchisee back around or help them find a way to exit the business in a dignified manner,” Gehrke says.

Gehrke says most franchise agreements contain a provision about maintaining the reputation of the brand, and bringing the brand into disrepute.

“To go and set up a website that attacks the franchisor and the business itself, which in extension damages every other franchisee’s business, would be quite consistent with bringing the brand into disrepute and may invoke that clause,” he says.

Gehrke believes mediation is an ideal way to resolve franchise disputes “in a way that is more timely, less stressful and less costly than litigation”.

“It was introduced as a cornerstone of the Franchising Code of Conduct and is very effective at bringing an issue to a head,” he says.

According to Gehrke, the role of the mediator usually ends when an agreement is reached.

“If the parties choose to use the mediator in future to help maintain the lines of communication and facilitate the execution of the agreement, that’s a matter for both parties to agree on between themselves,” he says.

“If you’ve got no intention of [honouring the agreement], you wouldn’t participate in mediation to start with – it would be a self-defeating activity.”

Trevor Banks, a NSW Wendy’s franchisee, went through mediation with the franchisor last year but says it failed to resolve certain issues within the company.

“Our mediation went for three days but the mediation itself went for one day… Mediation needs to be far more than one day,” he says.

But Wendy’s says this claim is incorrect.

“Wendy’s was involved in a dispute resolution process with Mr Banks which lasted for several months,” the company said in a statement.

“This process included a formal meeting between Wendy’s management and Mr Banks… At the close of this meeting, the mediation remained open and both parties committed to undertaking a range of actions.”

“These actions were agreed to by Mr Banks after another five months of discussions, culminating in a Memorandum of Understanding, which was signed by both parties.”

Banks believes there needs to be some sort of follow-up action to ensure any agreement reached is in fact being honoured.

“If what is agreed to in the mediation process is not followed through in the true sense of good faith, then a third party should be able to step in,” he says.