Circumventing the prohibition of competition in the franchise agreement – mr. AW Dolphijn – dated November 10, 2020
A non-competition clause in a franchise agreement is often experienced as objectionable by franchisees, especially if the non-competition clause also applies after the franchise agreement has expired. The Franchise Act does impose some restrictions on this prohibition, but such a prohibition is still possible. Sometimes attempts are made to circumvent the prohibition of competition. For example, see that commented-out statement here: https://bit.ly/3piUbyK
In a remarkable case, the preliminary relief judge ruled on October 22, 2020 (ECLI:NL:RBGEL:2020:5763) that a former franchisee had not violated the non-competition clause, even though the former franchisee leased the store to a friend who continued similar activities there.
The franchise agreement provided, among other things, the following:
In view of the protection of (the…) Formula, for a period of two years after termination of this Agreement, the Franchise will not, directly or indirectly, be self-employed or employed or in the form of any company or legal form, work or are otherwise involved, in any form whatsoever, in activities similar to (the…) Formula or the activities performed by the Franchisor under this Agreement.
The preliminary relief judge ruled that the former franchisee was actually not (any longer) able to close the shop and had no control over the new company. There was therefore no violation of the prohibition of competition, according to the court. There was therefore no question of evading the prohibition of competition. One may wonder whether involvement in the competitive activities, as referred to in the post-non-compete clause, does not exist if there is (sub)leasing to a third party that continues competing activities at the same location. Again and again, a concrete situation will have to be assessed on its specific merits in order to determine whether there has been a violation of the prohibition of competition.
mr. AW Dolphijn – franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to dolphijn@ludwigvandam.nl
Other messages
Core obligations in the franchise relationship II
This is the second article in a short series on some core obligations in the relationship between franchisor and franchisee and how to handle them.
Core obligations in the franchise relationship
This is the first article in a short series on some core obligations in the relationship between franchisor and franchisee and how to deal with them.
Franchise Law
Franchise Law
Reducing the risk of fictitious employment
Recently, the new Minister of Social Affairs, De Geus, made the choice that he wants to put an end once and for all to the discussion whether there is self-employment or a
Bound by non-compete clause after expiration of the
The vast majority of franchise agreements contain a so-called post-contractual non-compete clause (hereinafter referred to as “non-competition clause” for brevity).
Severance schemes in the event of (premature) termination of the
Retirement schemes Franchise agreements and comparable cooperation agreements regularly include a regulation to the effect that the rights under that agreement