No franchise agreement, despite the designation

Not everything is what it looks like. Even if the franchisor and franchisee believe that there is a franchise agreement, the legal situation may be different. The consequences can then be very far-reaching. For the time being, the franchise agreement has not been regulated by law.

Although franchise agreements have certain characteristics according to the literature and case law, these characteristics sometimes also apply to other types of agreements that are regulated by law. Those legal rules will then apply to the relationship between the parties. It is true that the agreement may state “franchise agreement”, but that does not automatically apply. What matters is the actual relationship between the parties and not just the title of the signed document.

For example, cases are known in which the parties entered into an agreement they called a franchise agreement, but the court ruled that it was in fact an employment contract or an agency contract. In retrospect, the driving instructor, ice cream vendor and physiotherapist turned out to have an employment contract. The stove seller eventually turned out to only mediate in the sale of stoves for the benefit of the “franchisor”/supplier and was therefore a commercial agent. Strict legal rules apply to the employment contract and the agency contract, which cannot be deviated from in an agreement.

For example, termination of an agency agreement is bound by statutory rules and cannot be dissolved without judicial intervention. Furthermore, the “franchisee” can, where appropriate, claim a goodwill compensation upon termination of the cooperation. Legal restrictions also apply with regard to non-competition clauses.

There can be an employment contract if the “franchisee” is obliged to carry out all work himself and the “franchisor” always gives instructions on how and when the work must be carried out. An employment contract cannot simply be terminated. This means, among other things, that the “franchisee” is entitled to a customary, or at least minimum, wage. Particularly in the case of a service franchise carried out by one self-employed person, the risk of an employment contract is lurking.

Are you sure you have signed a franchise agreement? In case of doubt, it is worthwhile to have this checked or to submit it to the tax authorities for review.

Mrs. J. Sterk and AW Dolphijn  – franchise attorneys
Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to Sterk@ludwigvandam.nl or dolphijn@ludwigvandam.nl