Article De Nationale Franchise Gids: “Unjustified cancellation by the franchisor: settle the bill.” – mr. C. Damen – dated September 20, 2021

The preliminary relief judge in Rotterdam recently ruled that the franchisor owes the franchisee compensation for the continuation of his business, because the franchisor has unjustifiably terminated the franchise agreement.

In this case it was a franchise formula developed for the mediation between independent care providers and care institutions. The franchisor and franchisee have concluded a franchise agreement, in which the franchisee has, among other things, the right to operate several branches within a district and to use the software platform of the franchise formula. Both parties have the right under the franchise agreement to give notice of termination at least six months before the end date. In that case, the right to mediation of healthcare personnel ends in accordance with the franchise formula.

At some point it appears in a conversation between the parties that the franchisor wants to discontinue the franchise organization because it wants to continue the cooperation with the franchisee in a different form. With a view to the negotiations to be conducted in this regard, the parties will conclude a confidentiality agreement. If it turns out that the franchisor hands the franchisee a letter in which the franchise agreement has been terminated by February 2021, the franchisor’s plans appear to be aimed at operating a branch in the franchisee’s district (or having it operated). The cooperation hardens and the parties are diametrically opposed to each other. Every attempt to continue the cooperation between the parties fails. The franchisor therefore confirms in February 2021 that the franchise agreement would have ended. The franchisee disagrees, as a result of which the conflict escalates.

The franchisee takes the position that the franchisor has continued the franchisee’s business without paying any compensation. In short, the franchisor would not have acted as a good franchisor when reorganizing the cooperation and would owe the franchisor compensation on the basis of unjust enrichment, goodwill and/or a customer compensation. The franchisor does not agree with this and states that it will not continue the franchisee’s business, but that a business affiliated with the franchisor will be started in the franchisee’s district. The franchisee does not stop at this and summons the franchisor in proceedings on the merits and summary proceedings, in which she claims the lifting of the non-compete and non-solicitation clause. In addition, the franchisee demands that the franchisor still pays a fee to it for continuing its business in the franchisee’s district. In addition, the franchisee accuses the franchisor of having acted unlawfully towards it by working in a group context, together with other group companies, to ensure that its business has been taken away and that it has been continued within the franchisor’s group. On this basis, the franchisee claims that she is entitled to compensation. To be sure of her story, the franchisor is seized. Pending the proceedings on the merits, the franchisor in turn requests the lifting of the levied attachments and rejection of the franchisee’s claims in preliminary relief proceedings.

The preliminary relief judge seems to share the franchisee’s view that she is entitled to compensation. For example, the preliminary relief judge rules that the franchisee has sufficiently motivated the right it has invoked. However, in order to be able to assess the arguments of the parties, further investigation by the court on the merits is required. In addition, the preliminary relief judge considers it not improbable for the time being that a certain compensation is owed to the franchisee in the context of the termination of the franchise relationship.

The facts and circumstances under which a franchise agreement ends or is terminated by the franchisor may result in the franchisee being entitled to compensation. In this context, clear and balanced agreements must be made between the parties in order to prevent such problems.

Ludwig & Van Dam lawyers, franchise legal advice.
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