Franchisor fails by invoking a non-compete clause

By mr. Th.R. LudwigPublished On: 18-01-2018Categories: Competition, Dispute settlement, Franchise Agreements, Statements & current affairsTags: franchise agreement, Franchise formula, franchisee, franchisor, label10, label6, non-competition clause, tag2

Although a non-compete clause is validly formulated in a franchise agreement, a situation may arise that is so diffuse that the franchisor cannot invoke it. See the judgment of the Arnhem-Leeuwarden Court of Appeal of 10 October 2017, ECLI:NL:GHARL:2017:8777.

The franchisor argued that the franchisee had acted in violation of the non-compete clause by opening his new store. This stipulation meant that, if the agreement ends, the franchisee is prohibited for a period of six months from carrying out similar commercial activities within the territory.

The Court of Appeal shares the view of the preliminary relief judge who previously ruled that the franchisor could not invoke the non-compete clause. This was because the leased retail property had to make way for housing and the franchisor had terminated the franchise agreement per canceled on January 1, 2012. In anticipation of new business premises to be rented from the franchisor, the franchisee (temporarily) operated a business under his own name. It was uncertain whether the franchisor would still be able to offer (suitable) business premises to continue the collaboration.

In view of this diffuse situation after the termination of the franchise agreement, it is insufficiently clear that the parties nevertheless continued the franchise agreement and that all provisions of the franchise agreement continued to apply in full. The appeal to the post-non-compete clause in the franchise agreements therefore failed.

If, upon termination of a franchise agreement, a franchisor leaves open whether the post-non-compete clause applies, this ambiguity can under certain circumstances be held against the franchisor.

mr. AW Dolphijn – Franchise lawyer

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