The European Code of Honor on Franchising: a guarantee for parties?

All national franchise associations, united in the European Franchise Federation, contributed to the creation of a so-called ‘European Code of Honor for Franchising’ in the 1970s. The purpose of this Code of Honor is to formulate rules that both the franchisor and the franchisee must comply with with the aim of “promoting a healthy and balanced franchise”. The Code of Honor therefore aims to promote long-term and fair cooperation between the franchisor and the franchisee.

The Code of Honor includes various obligations for the franchisor and the franchisee, both with regard to the preliminary phase, i.e. before the parties have entered into a franchise agreement with each other, and for the period after the parties have entered into a franchise agreement with each other. Obligations are also included with regard to the content of the franchise agreement. A (random) selection of what can be read in the Honor Code:

before setting up a franchise formula with franchisees, the franchisor must first have successfully applied the concept for a reasonable period of time; the franchisor must provide the franchisee with continuous commercial and/or technical support throughout the term of the franchise agreement; the franchisee must maintain the common identity and reputation of the franchise formula; the franchisee must provide verifiable business records to the franchisor so that the development of the franchisee can be assessed; both the franchisor and the franchisee must be fair to each other; franchisor and franchisee shall resolve complaints, grievances and disputes in good faith and willingly, through honest, reasonable, direct communication.

How does a (potential) franchisee know to what extent a franchisor is committed to the Honor Code? In principle, a franchisor will be able to indicate this in writing through all kinds of documentation, such as the franchise agreement, information on the website or brochures. Furthermore, franchisors who are members of the Dutch Franchise Association (NFV) will always commit themselves to the Honor Code. In that case, the franchisor will in any case have to harmonize his franchise agreement with the Code of Ethics.

It is important to note that the Code of Honor is a collection of guidelines and therefore not a statutory provision that an individual franchisor or franchisee can directly invoke. So what to do if one of the parties does not respect the rules of the Code of Honor? The franchise agreement may explicitly state that the parties undertake to comply with the provisions of the Code of Honor. Failure to do so may result in malpractice. Even if the Code of Honor has not been discussed in so many words in the franchise agreement, the Code of Honor can be regarded as a collection of rules, as is normal within franchising. Violation of the Code of Honor could then be regarded as unlawful. In principle, the Honor Code can therefore be seen as a useful (quality) guarantee.

In short, although the European Code of Honor on Franchising is not a formal legal provision to which the parties can directly claim, the Code of Honor can form a useful framework for determining the extent to which the parties in their relationship meet their mutual obligations, or have met.

Ludwig & Van Dam franchise attorneys, franchise legal advice

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