Franchisee trapped by non-compete clause? – dated October 21, 2019 – mr. AW Dolphin

On October 10, 2019, the District Court of East Brabant, ELCI:NL:RBOBR:2019:5859
decides that a franchisee in the event of premature termination of the
franchise agreement was nevertheless bound by it
non-competition.

The franchisee did not achieve the turnover forecasts and blamed the
franchisor that the franchise system is dysfunctional, her an incorrect one
representation of the situation has been predicted prior to the conclusion of the contract
franchise agreement and the franchisor has acted unlawfully
by painting an overly rosy picture in that context. The franchisee
therefore demanded from the court that she would no longer be held liable for the time being
comply with the obligations under the franchise agreement, including the
non-competition clause, until it is definitively established that the
franchise agreement would have been formed in an invalid manner.
The franchisee also argued that the franchisor had no interest
would have if the prohibition of competition were maintained, because the
franchisee has not built up a network within the franchise organization and
hardly any knowledge and know-how would have been transferred either
enjoy protection. The franchisee complains that they are considered small
entrepreneur is made financially impossible for the franchise organization
to leave and is therefore stuck.

The court rules that according to settled case law, the nature of the
franchise agreement entails that the franchisor
has an obligation to ensure that the to a future
franchisee provided forecast is sound. The franchisor serves
to guarantee the correctness of the data that contribute to the forecast
underlying. If a franchisee fails to
operation of its business, as budgeted in the forecast
and moreover it is established that the franchisor does not have
ensured a proper prognosis, the franchisor is in principle
liable for damages. The mere fact that the achieved result of a
franchisee is lower than forecast by the franchisor
does not mean that the prognosis is unsatisfactory. An incorrect prognosis can
therefore only provide grounds for undermining the right to exist of the
franchise agreement if circumstances arise that of
deviate from the aforementioned principles. The court rules that
provision of false factual information by the franchisor
prior to the conclusion of the franchise agreement
or at least that has not proven to be the case. Also from one
non-performance by the franchisor has also not been proven. being judged
therefore that the franchise agreement will still exist and that
therefore the non-compete clause is also valid. The interest in the
franchisor of compliance with the prohibition of competition by the
franchisee has become sufficiently clear now the franchisor
has demonstrated that important trade secrets have been shared with the
franchisee.

In this case, the franchisee simply had to comply with the franchise agreement
including the non-competition clause. What is striking about this statement is
that no appeal appears to have been made to the Acquisition Fraud Act. This
doctrine seems to narrow the position of a franchisee considerably
can relieve.

mr. AW Dolphijn – franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice. Want
you respond?

Go to dolphijn@ludwigvandam.nl