The franchisor’s duty of care in extreme times

The current credit crisis is spreading like a raging fire and has already claimed many victims in all layers of society. The consequences of the crisis have not gone unnoticed among franchisors and franchisees, and in some cases there is even a threat of bankruptcy, whether or not across the formula. In the present argument, an attempt will be made to answer the question of what a franchisee can expect in terms of advice and assistance from his franchisor in such (extreme) circumstances.

According to settled case law in the Netherlands, a franchisor must in principle provide the franchisee with ongoing advice and assistance under the franchise agreement, especially if the forecasts presented by the franchisor to the franchisee are not met. While this last phrase is specifically mentioned in relation to situations where the projections provided by the franchisor are not based on a thorough and careful market and location survey, a linguistic review of case law, as well as the nature of the franchise relationship between the franchisor and franchisee, it can be assumed that this phrase also applies to situations where the forecasts turn out to be sound, but that the forecasts have nevertheless not been achieved by the franchisee, for example because a credit crisis is raging. After all, a situation must ultimately arise that does justice to the franchise agreement, namely one in which both the franchisor and the franchisee benefit from the franchise agreement, regardless of what else is going on.

So advice and assistance. But the advice and assistance that will be sufficient in normal situations to arrive at a situation that does justice to the franchise agreement, so that both the franchisor and the franchisee benefit, will not be sufficient in extreme times, such as the current credit crisis. How comprehensively should the franchisee be advised and supported during such times? In principle, it could be argued that it follows from the aforementioned duty of care that the franchisor must do everything reasonable to arrive at a situation in which both the franchisor and the franchisee benefit from the franchise agreement, even if this means that more advice and assistance from the franchisor than in “normal” times. 

This does not mean that a franchisor should support a franchisee ‘at any cost’ if it is objectively clear that the franchisee’s business is no longer viable. If the franchisor were to do so, this could conflict with an important element in the franchise relationship between franchisor and franchisee, namely the franchisee’s self-employment. After all, a franchisee runs a business for his own account and risk. Due to excessive advice and assistance from the franchisor, there could be a danger that there is no longer any question of running a business at your own risk and that it is doubtful to what extent there is still a franchise relationship.

In short, in extreme times a franchisor may be expected to provide more advice and assistance to the franchisee than usual, although this should never be at the expense of the franchisee’s independence or that this increased support is at the expense of the franchisor itself. . It is up to the parties themselves to find a proper balance.

Ludwig & Van Dam franchise attorneys, franchise legal advice