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
Article Mr. C. Damen – “When does the obligation to provide proof apply for the submission of the franchise agreement?” dated August 17, 2020
Does the obligation to produce information apply to showing a (franchise) agreement in proceedings if the parties to the proceedings do not have a legal relationship to the (franchise) agreement?
Article Mr. AW Dolphijn – “How do you value a franchise company with a discharge loan?” – dated August 14, 2020
A discharge loan is a proven means of franchisors to find long-term franchisees.
Article De Nationale Franchise Gids: “Information obligations of the intended franchisee under the Franchise Act” – dated August 7, 2020 – mr. AW Dolphin
Although the purpose of the Franchise Act is to protect franchisees against franchisors, a number of obligations have also been laid down for franchisees.
Legislative text of the Franchise Act – dated July 24, 2020 – mr. AW Dolphin
The legal text of the Franchise Act was published in the Staatsblad on 1 July 2020. The full legal text reads as follows:
Law Franchise – dated July 23, 2020 – mr. AW Dolphin
The Franchise Act will have a considerable impact on both franchisors and franchisees.
Contractual dissolution requirements not observed? No legal dissolution of the franchise agreement – dated July 23, 2020 – mr. C. Damen
Can a franchisor terminate the franchise agreement if it has failed to comply with its own contractual requirements?