If your franchisor is your competitor

Franchising aims at cooperation. The franchisor should assist the franchisee in achieving mutual benefit from the operation of the formula. Sometimes this gets out of balance. What if the franchisor starts to compete with the franchisee?

In principle, a franchisor is not allowed to compete with its own franchisees. After all, that is contrary to the idea behind the franchise cooperation. Competition from your own franchisor is not always obvious.

Competition by the franchisor can take several forms. It is obvious to establish a branch in the franchisee’s market area. There is also the possibility of facilitating the arrival of someone else who is competitive. For example, the franchisor may rent a retail space to a third party who is a competitor of the nearby franchisee.

What often happens is that the franchisor reserves the right to be the only one to have a web shop, while the franchisees are obliged to promote the web shop. If the franchisee does not share in the revenues, this can also be unlawful.

It also happens that the same franchisor starts a second formula that is competitive. It is then bitter if the franchisor puts all his energy into this second formula and uses the fees paid by the franchisees of the first formula. The franchisor may also not trade the core range that the franchisees have co-developed and which has been sold to the format.

Franchisees must be alert to competition from their own franchisor and, where necessary, appeal against injustice.

mr. AW Dolphijn – franchise lawyer

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