Position of franchisees in franchisor restructuring

Franchisees must be adequately and generously informed in advance by the franchisor about the content and consequences of (further) agreements that the franchisor makes about a proposed restructuring of the franchisor’s organization, as has recently been determined in court.

In the internal franchisor organization, drastic changes can sometimes be made in the structure and governance. It therefore not only concerns changes in brand strategy, but also, for example, with regard to (collective) purchasing conditions and the entanglement of interests with purchasing organizations or competitors. All this can mean that a lot will change for franchisees.

The following case happened recently. A franchisor of a do-it-yourself formula was looking for support from its franchisees for its restructuring plans. Initially, there was insufficient support for the intended restructuring. When the franchisor wanted to adjust its restructuring plans, the question for various franchisees was what the adjustments would be. However, in the opinion of the franchisees, these questions were insufficiently answered. The franchisor went ahead with the restructuring, but the franchisees did not accept it. It came to a lawsuit. On that occasion, the Court of Appeal underlined the franchisor’s duty in such situations to inform its franchisees in a timely manner and in advance, generously and adequately about the changed restructuring plans.

Other case law also shows that franchisees must, under certain circumstances, be generously and adequately informed in the event of reorganizations within the franchisor’s organisation. In many cases, the franchisee’s association or franchise council takes this on. Of course that’s a good thing. The collective interests of the franchisees must then be parallel to the individual interests. In any case, individual franchisees should determine their own legal position for themselves.

Franchisees would do well to be alert, to keep in touch with the franchisor and to document the questions and answers in writing as well as possible. If it turns out that there was a misunderstanding or lack of clarity afterwards, it can be established on the basis of the documentation whether adequate and generous information was provided.

See also: The National Franchise Guide (click here) 

mr. AW Dolphijn – Franchise lawyer

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