Cost price that is too high as a hidden franchise fee

An interim judgment of the District Court of The Hague dated 30 August 2017, ECLI:NL:RBDHA:2017:10597 (Happy Nurse), shows that the court considered the question whether the cost price charged by the franchisor to the franchisee was correct. 

The franchise system is as follows. The personnel mediated by the franchisees enter into an employment contract with the franchisor and are paid by the franchisor. The franchisor invoices the hirers for the hours worked. After withholding a franchise fee, the franchisor also passes on the amounts received from the hirers to the franchisees.

The franchisees independently determine the rate for the staff to be borrowed. This rate includes a cost price. The cost price must be determined by the franchisees themselves on the basis of the so-called “wage cost price conversion factor”. This “wage cost conversion factor” is determined annually by the franchisor. Among other things, that component does not excel in transparency. 

The franchise agreements that the franchisor concludes with the franchisees are materially similar to the franchise agreements that another franchise organization (Olympia) has concluded with its franchisees. In the judgment of the Court of Appeal of The Hague on 12 January 2016, ECLI:NL:GHDHA:2016:256 (J&P Consultants/Olympia), it was determined, among other things, that, insofar as the compensation for the cost price paid by the franchisees, in retrospect, the actual exceeds the cost price, this has been paid unduly (Article 6:203 paragraph 2 of the Dutch Civil Code) and can therefore be reclaimed by the franchisee. 

The court follows this judgment and rules that a reasonable interpretation of the franchise agreement means that it is impermissible if the franchisor, by charging an excessive cost price, has created a second (hidden) franchise fee in addition to the franchise fee. 

The court has not yet been able to determine whether there has actually been an excessive cost price charged and indicates that it intends to have this further assessed by experts. 

mr. AW Dolphijn – Franchise lawyer 

Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to dolphijn@ludwigvandam.nl .