Supreme Court on termination of franchise agreement
On 29 November 2024, the Supreme Court made a number of rulings in similar cases between several franchisees and their franchisor Leen Bakker (see, for example, ECLI:NL:HR:2024:1709). This included the question of whether the franchisor could terminate the franchise agreement. In particular, it is important whether the franchisor owes a (termination) fee and whether the termination fee that the franchisor had offered to the franchisee would be sufficient. Termination legally valid
The Supreme Court considers that the circumstance that the franchise agreement has been terminated without offering appropriate (damage) compensation may be taken into account when determining the amount of compensation to be paid.
The circumstances of the case may mean that a termination without appropriate compensation (for damages) being offered at the same time is unacceptable by standards of reasonableness and fairness. In such a case the termination is not valid.
In this case, the Court already determined that Leen Bakker considered the introduction of the Franchise Act and in particular the right of consent from its position as an increase in burdens and a business economic reason for terminating the franchise agreement. For that reason, Leen Bakker wanted to terminate the franchise agreements. According to the Supreme Court, this (strategic) choice is a choice that an entrepreneur may make and therefore carries weight for Leen Bakker.
Compensation despite valid termination
Although the termination is legally valid, it is considered that in the given circumstances the requirements of reasonableness and fairness require that the termination should be accompanied by payment of compensation. The franchisor had already offered compensation upon termination, but the Court had already determined that this offer would not have been appropriate and was therefore too low.
The Supreme Court had previously also determined with regard to a long-term agreement that even if a long-term agreement provides for a termination arrangement, additional requirements can also be imposed on the termination on the basis of the supplementary effect of reasonableness and fairness (Supreme Court 2 February 2018, ECLI:NL:HR:2018:141 (Goglio/SMQ Group). These additional requirements may include payment of compensation.
Conclusion
It follows from this judgment of the Supreme Court that a franchisor, such as Leen Bakker, cannot simply terminate a franchise agreement without taking into account the interests of the franchisee. Even if there is a valid reason for termination, the franchisee may be entitled to appropriate compensation.
Ludwig & Van Dam lawyers, franchise legal advice.
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