Post non-compete clause in hard franchising

The summary proceedings judge of the Amsterdam District Court ruled on August 1, 2022, ECLI:NL:RBAMS:2022:8010, on the question of whether a franchisee was bound by a post-contractual non-competition ban.

A franchisee claims exemption from the post-contractual ban on competition, apparently in order to continue operating the business under its own name at the same location after the franchise agreement expires.

It has been established that the franchisee intends to continue operations with another entity, unless it uses a new name at the same location. However, this is precisely what the franchisor intended to prevent with the post-competition ban.

According to the judge, the franchisor has made it sufficiently plausible that the franchise formula qualifies as a ‘hard franchise’ and that uniformity, identity, image and name recognition play a major role, unlike in some other rulings where there was a ‘soft franchise’ in which these characteristics played no role. See for example Midden-Nederland District Court January 13, 2016, ECLI:NL:RBMNE:2016:191, Overijssel District Court June 22, 2016, ECLI:NL:RBOVE:2016:2914, Overijssel District Court September 21, 2016 ECLI:NL:RBOVE:2016:3742 and Gelderland District Court February 16, 2021, ECLI:NL:RBGEL:2021:1875.

All in all, the franchisor has a compelling interest in preserving, or at least being able to protect, the know-how, identity and reputation associated with its franchise formula. In view of the foregoing, it is therefore not unacceptable according to the standards of reasonableness and fairness under Article 6:248 paragraph 2 of the Dutch Civil Code that the franchisor holds the franchisee to the post-contractual prohibition on competition.

All this means that the franchisor can fully hold the franchisee to the non-compete clause (the post-contractual non-competition clause) and that the franchisee is therefore – in short – not permitted to, during the period of one year after expiry of the franchise agreement, to undertake activities at the location of the branch that are similar and/or competitive to/with the activities of the franchisor, or at least at the aforementioned address to undertake activities that are similar to those carried out by the franchisee in the context of activities carried out under the franchise agreement. The claim in convention will therefore be rejected.