The importance of interest in a non-compete clause

Non-compete clauses, both during the term of an agreement and which continue for a period after the end of the agreement (the so-called post-contractual non-compete clause), are not only common in employment contracts, but also in a multitude of (vertical) cooperation agreements such as selective distribution agreements and of course franchise agreements.

The employment law variant of the post-contractual non-compete clause has a number of guarantees in favor of the employee, pursuant to Section 7:653 of the Dutch Civil Code. The employee also has the option of limiting, suspending or annulling the non-competition clause pursuant to Article 7:653 lis 3 of the Dutch Civil Code. During the assessment, the court makes a weighing of interests, in which the interests of the employer (to be legally protected) to maintain the non-compete clause unchanged are weighed against the interests of the employee to render the non-competition clause inapplicable (see e.g. Rb. (chairman) Middelburg 14 September 2010, LJN  BO3003).

It follows from two recent judgments of the District Court of The Hague dated 16 July 2014 and the District Court of Gelderland dated 9 March 2015 that a weighing of interests also takes place in franchise relationships. Where the weighing of interests in employment law originates in a (three-quarters) mandatory provision, freedom of contract applies in principle with regard to franchise agreements. The weighing of interests therefore appears to arise from article 3:303 of the Dutch Civil Code (which article reads: “ Without sufficient interest no one is entitled to a legal claim”) , in combination with the reasonableness and fairness of article 6:248 paragraph 2 of the Dutch Civil Code.

In the well-knownPronuptia”judgment of the European Court of Justice dated January 28, 1986, the court has made clear what the function of a non-competition clause is: the franchisor must be able to transfer his know-how without running the risk that this know-how and assistance will benefit, albeit indirectly, competitors. A criterion for testing the interests of the franchisor in enforcing the non-competition clause can be derived from this: in this context, enforcement must be necessary for the protection of the know-how against the competition.

With regard to the aforementioned review, case law attaches particular importance to the question of whether the franchisor still intends to continue operations in or near the (former) location. In the judgment of the District Court of Gelderland of 9 March 2015 (ECLI:NL:RBGEL:2015:1629)  for example, an invocation of the non-compete clause was rejected because the franchisor, invoking the clause, no longer intended to operate another store in the place of business, or the district. The fact that the franchisee could benefit from the public’s familiarity with the (now discontinued) establishment, if he continued the same operation there under his own name, was deemed by the court to be of insufficient importance to allow the claim for enforcement.

In the judgment of the District Court of The Hague of 16 July 2014 (ECLI:NL:RBDHA:2014:8667) it was discussed whether or not the franchisor would continue operations at the (former) location. This was still extremely uncertain. The franchisor could therefore only invoke enforcement of the non-competition clause if and insofar as he continued the operation. As long as the operation had not (yet) been continued, the franchisee would therefore be free to continue the operation of the competing company.

Both franchisors and franchisees would do well to include the above assessment framework in their claim for enforcement or suspension of the non-competition clause. If you do not do this, it is possible that you will get the short end of the stick in a procedure.

Mr D. Uijlenbroek – Franchise lawyer

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