Non-competition clause in the franchise agreement should not be lightly brushed aside due to (alleged) incorrect forecasting and non-performance and/or reasonableness and fairness

The Court of Appeal of ‘s-Hertogenbosch recently ruled on the question whether a franchisee can be held to a non-competition clause in all circumstances after the franchise agreement has expired and on what grounds that clause should not be applicable. The franchisee in question had terminated its franchise agreement itself. Subsequently, according to the franchisor, the franchisee in question developed competitive activities that would be contrary to the non-competition clause.

In this case, the non-competition clause not only pertained to the location from which the franchise agreement was operated, but to an entire field of activity. This is due to the nature of the activities related to mobile repair of bicycles in an entire working area.

First of all, it was established that if the franchisor has only a small market share, a non-competition clause may, from a competition law perspective, extend to an entire market area and need not necessarily be limited to the franchisee’s place of business. Furthermore, the franchisee’s defenses that there were incorrect forecasts and/or attributable shortcomings on the part of the franchisor and that compliance with the non-compete clause could therefore not be demanded were subject to strict formal and substantiation requirements. It follows from this that the non-competition clause cannot be set aside lightly on the grounds of error and/or shortcoming.

It is also interesting that the Court of Appeal also considers that a non-competition clause need not be interpreted solely according to the letter, but that it also comes down to the meaning that the parties could assign to each other’s statements and behavior and what they could reasonably expect in that regard. expected each other. According to the court, the social circle to which the parties belong and what legal knowledge can be expected of them play a role in this. With this, the court also applies the so-called Haviltex standard when interpreting a non-competition clause.

The court also considers that the franchisee cannot lightly invoke the so-called derogatory effect of reasonableness and fairness. In particular, the idea that things will not go so smoothly when weighing up interests and compliance with the non-competition clause often takes root in many franchisees and is based on this. Strict requirements are therefore set for this as well. If one wants to get out of a non-competition clause, there are thus sufficient legal options, but for all these options one should actually be well prepared.

The above also leads to the conclusion that franchisors should formulate the non-competition clause in such a way that it can withstand the test of competition law criticism and the weighing of interests. Franchisees who intend to undertake competitive activities, even if they are forced to do so by terminating the franchise agreement, must therefore submit a timely and well-founded request for suspension of such a non-competition clause.

Ludwig & Van Dam franchise attorneys, franchise legal advice