Does the employment contract end when entering into a franchise agreement?

By Published On: 12-09-2011Categories: Statements & current affairsTags: ,

Court of Appeal in Arnhem

Lawsuits concerning the question of whether someone is (still) an employee or has become a franchisee by entering into a franchise agreement do not appear frequently in the (so far) published court rulings. This may mean that the aforementioned question does not arise in practice, or that the parties prefer to settle such issues outside the courtroom. In any case, the Court of Appeal in Arnhem was recently confronted with an issue in which the central question was whether the person in question was (still) an employee or could be regarded as a franchisee. The issue is – briefly summarized – as follows.

A supermarket manager of a certain supermarket formula X was told in 2007 that the supermarket, where he had been working for 25 years at that time, would soon be sold and converted to the (franchise) supermarket formula Y. The supermarket manager’s employment contract would in that case, therefore, would be canceled and a franchisee would fulfill the duties of the manager in the (converted) supermarket.

Because the conversion and opening of the supermarket had to be completed in the short term and, partly because of this urgency, the franchisor had not yet found a candidate to take on the role of franchisee, the franchisor had approached the manager and asked him to what extent he would be interested in becoming a franchisee. Given his (advanced) age, as well as the prospect that his job would soon be lost, the manager had considered this offer from the franchisor. However, the manager was very clear to the franchisor from the start that, in any case, certain preconditions had to be met before the manager could agree to the franchiseeship. After all, the manager had no intention of giving up his long-term employment ‘just like that’.

The parties then entered into negotiations to reach agreement on the takeover of the supermarket and franchiseeship of the manager. Despite the fact that the negotiations between the parties were still ongoing, and there was therefore no cool franchise agreement (yet), the supermarket has already been converted and opened. The franchisor even went so far as to put the name of the manager on the facade of the supermarket, although there was no agreement (yet) between the parties. There was pressure from the franchisor on the manager to behave like a franchisee and sign the franchise agreement.

However, the parties never came to an agreement, because the manager fell ill and was absent, partly due to the pressure placed on him by the franchisor and partly due to the chaos that the conversion and opening of the supermarket entailed. At that point, however, the franchisor took the position that the parties had agreed on the franchise agreement and that it had made the manager a franchisee. As a result, the manager’s employment contract had, in the franchisor’s view, lapsed. The franchisor therefore no longer paid the manager any wages. After all, someone cannot be a franchisee and an employee at the same time, according to the franchisor. However, the manager was of the opinion that he had never disclosed his employment contract, or would have wanted to disclose it, certainly not without full agreement between the parties on the exploitation of the (franchise) supermarket. Because of the franchisor’s tough attitude, the manager was not only deprived of wages, but also of social safety nets, such as benefits. As a result, the manager was so cornered by the franchisor that he was forced to take legal action.

The central question that the Court of Appeal has therefore answered in this matter is to what extent the manager’s employment contract has come to an end in February 2007 or not. The court believes that this is not the case, because the manager had not expressly agreed to the termination of his employment contract. This is therefore in accordance with current case law. However, the court agrees with the franchisor that, if a cool franchise agreement had been concluded between the parties, it could “ possibly ” be inferred that the manager had agreed to the termination of the employment contract. In the view of the Court of Appeal, the entering into a franchise agreement by an employee may therefore lead to the assumption that the employment contract has lapsed with the consent of the employee. However, partly in view of the word “ possible ”, in the opinion of the court there is apparently also a possibility that a person can be both a franchisee and an employee in certain cases. Some kind of hybrid quality, perhaps.

However, the Court of Appeal does not specify which specific cases these could be, because, according to the Court of Appeal, it is beyond any doubt that there is no agreement between the parties with regard to the franchise agreement. In any case, there is no question of franchiseeship in the present case. For that reason, the Court of Appeal can fairly easily conclude that there is no real reason to assume that the manager, given the lack of a franchise agreement, would have wanted to reveal his employment contract during the negotiations with the franchisor. In any case, there is no question of a hybrid capacity of the manager.

The valuable lesson that can be learned from the foregoing, for both franchisors and franchisees, is that it is extremely unwise to already act as if there were agreements, without clear agreements between the parties and without these agreements ( legally) properly and also in writing. This sounds obvious, but it is painfully clear in this matter that a large and professional party can also be guilty of such actions. The franchisor in this matter would therefore have done better not to be guided only by the planned opening date of the supermarket. By acting hastily, she forced a factual situation on the manager, while there was no legal reason to do so. If the franchisor had allowed himself, but certainly also the manager, the time that was necessary to arrange such matters properly (legally), this matter might never have escalated with all the nasty consequences that entails. In short, once again the adage “look before you leap” is of current value.


Mr JH Kolenbrander  – Franchise attorney

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