Franchisee circumvents non-competition clause through partner – mr. RCWL Albers – dated February 24, 2022

In a recent case, a graphics services franchisor attempted to prevent the partner of a (former) franchisee from continuing the franchisee’s business. However, the preliminary relief judge of the District Court of The Hague ruled that there was no violation of the post-contractual non-compete clause.

Facts

This case concerned a franchisee who operated his business in a BV (hereinafter: BV I), but he had also signed the franchise agreement privately. His partner was employed by BV I as an employee and she had terminated her employment contract with effect from 31 August 2021.

The franchisee (and BV I) had terminated the franchise agreement by October 10, 2021.

A non-competition clause is included in the franchise agreement:

“Franchisee and Private Franchise shall not, directly or indirectly, sell goods and services at the Point of Business, directly or indirectly, for one year after termination of the Franchise Agreement, which may compete with the goods and services that are the subject of this Franchise Agreement.”

On July 5, 2021, BV II will be incorporated, of which the partner of the franchisee will be the sole shareholder and director. BV I will transfer its business to BV II and BV II will continue operations as of October 11, 2021.

Review judge

In short, the preliminary relief judge rules that it has not become apparent that the former franchisee is involved in the operation of his partner’s business and that therefore there can be no question of a violation of the non-compete clause in the franchise agreement.

In addition, for this reason there could also be no question of benefiting from a default by BV II, since BV I does not commit any default.

Conclusion

Although the assessment of the preliminary relief judge is not incomprehensible in itself, it is very obvious in this case that there is a deliberate plan to circumvent the non-compete clause.

In addition, I wonder if there were no other options for the franchisor to prevent this plan from being realized. For example, it is customary for franchise agreements to include a first right of purchase in order to protect the formula and to maintain locations. For example, the franchisee should have offered the establishment (first and under the same conditions as to his partner) to the franchisor.

A more broadly formulated non-compete clause could also have offered a solution here by including in the clause that the franchisee guarantees that the non-compete clause is not made illusory by this type of construction, contrary to the purport of the clause.