Article Franchise+: “Is the franchisor bound by the statutes of the franchisees’ association?” – mr. M. Munnik – dated November 11, 2021

Within a franchise organization it is not uncommon for franchisees to unite with each other. Often the franchise agreement even states that the franchisee is obliged to become a member of the franchisees’ association. Within a franchise formula, the association often serves as a consultative and advisory body through which the interests of franchisees are represented. Since the entry into force of the Franchise Act, there is often even a right of consent. The statutes of the association (or a cooperative) often contain provisions regarding the (consultation) structure and relationship with the franchisor. But is the franchisor bound to this without further ado? The preliminary relief judge of East Brabant (‘s-Hertogenbosch) recently ruled on this.

The following is going on. Franchisor and franchisee have a dispute about the end date of the franchise relationship. The franchisee believes that he can terminate the franchise relationship earlier due to a change of shareholding, while the franchisor believes that this is not the case. The court also rules that the franchisee cannot terminate the franchise relationship earlier on this basis. However, the franchisee argues that it can still prematurely terminate the franchise agreement on the basis of the articles of association of the cooperative, of which franchisees are members.

In connection with this intended termination of the franchise agreement, the franchisee therefore also terminates the membership of the cooperative.

The articles of association of the cooperative stipulate that in the event of termination of membership of the cooperative, the board of the cooperative can, in consultation with the withdrawing member, make arrangements for settlement of the franchise agreement. According to the franchisee, this would show that the franchise agreement would also end when the membership of the cooperative was terminated. The franchisee has therefore canceled his membership on this basis. However, the court disagrees with this argument. The court rules that the franchisor is not a member of the cooperative, therefore there is no legal relationship and that it is therefore impossible to see that it would be legally bound by the articles of association. The franchise agreement has therefore not ended.

This ruling shows that it is important that the franchisees’ association (or cooperative) and the franchisor make good agreements about cooperation and that it is in principle insufficient to include these agreements in the articles of association alone. The franchisor is not automatically bound by this. Additional agreements will therefore have to be made. Agreements in this regard can, for example, be included in the franchise agreement, but also in a cooperation agreement between the franchisees’ association and the franchisor. The franchisor also has an interest in this.

Since the Franchise Act stipulates that franchisees have a right of consent for certain subjects, the franchisor can greatly benefit from well-organized consultations of and with its franchisees, for example through a representation mechanism such as the association, especially if the consent of several franchisees has to be obtained. For example, if a formal franchisees’ association has been chosen, the articles of association may provide that the consent of the board of this association binds all franchisees who are members of this association (see the explanatory memorandum). However, if the underlying consultation structure is regulated in the articles of association of the association, the parties should be alert to the fact that separate agreements must be made with the franchisor regarding the fulfillment of those agreements included in the articles of association by the franchisor. If this does not happen, franchisees run the risk that the franchisor is not bound by the agreements included in the articles of association.