Dismantling of a franchise formula; franchisor Yarden again sanctioned with tenfold penalty payments

Franchisor Yarden continues to phase out the formula. It does this partly because it continues to refer relations and (potential) customers to a competitor Dela, with which it has merged. She does this despite a previous judicial injunction. In a judgment of 15 November 2022, ECLI:NL:RBMNE:2022:4671, the Central Netherlands District Court increased the previously imposed penalty payment tenfold.

Yarden’s customer contact center was integrated into Dela’s customer contact center after Yarden’s merger with Dela. As a result, telephone requests to Yarden’s 0800 number for arranging (upcoming) funerals are sometimes incorrectly referred to Dela instead of to Yarden franchisees. Franchisor Yarden had already been ordered not to refer relations and (potential) customers to competitor Dela, under penalty of penalty payments. See Court of Central Netherlands, 29 July 2022, ECLI:NL:RBMNE:2022:3148, see further: https://bit.ly/3xPUmHG

Yarden has also failed to get its customer contact center in order, according to the franchisees. The franchisees have done spot checks and made “mystery calls” to Yarden’s 0800 number. To this end, the franchisees have registered the provision of funerals with Yarden, which they had already accepted (directly) without the intervention of Yarden. According to the franchisees, this was the only way to verify the franchisor’s compliance with the previous injunction.

The franchisees have had penalties declared forfeit. The franchisor then claimed in interlocutory proceedings that the penalty payments are not owed to the franchisees. As a counterclaim, the franchisees have demanded an increase in the periodic penalty payments.

The franchisor states that the periodic penalty payments would not have been forfeited and that it would have made the necessary efforts to avoid referring to competitor Dela. The franchisor also states that it is not they, but a group company, namely parts of Dela with which it has merged, that are responsible for the errors in the referrals. The Franchisor also states that the franchisees do not suffer any damage from the “mystery calls”. After all, the franchisees had already received the orders for the relevant funerals.

The court rules that the necessary efforts of the franchisor have proved to be insufficient. As a franchisor, Yarden cannot hide behind group companies either, as the court had already established in the judgment of 29 July 2022. The court also determines that the prohibition on referral relates to the method of referral and not to mere missed funerals. The franchisees have no way to verify Yarden’s referral methodology other than through “mystery calls”. Finally, the court rules that the imposed penalty payments are intended to create an incentive to comply and that the imposed penalty payments do not sufficiently achieve this effect.

The court finds Yarden in the wrong and again orders Yarden to refer relations and (potential) customers to Dela, whereby the penalty payments are increased tenfold.

It can sometimes not be easy for franchisees to prove the phasing out of a franchise formula. By acting actively, however, a good fist can be made under certain circumstances.