Transfer of business with ‘preferred supplier’ of franchisees

On 13 June 2017, the Amsterdam Court of Appeal ruled in interlocutory proceedings, ECLI:NL:GHAMS:2017:2144, on the question whether employees of a ‘preferred supplier’ of the franchisees designated by the franchisor have automatically become employees of the newly appointed ‘ preferred supplier’. 

Shell has entered into franchise agreements with service station operators. This stipulates that the franchisees are obliged to purchase certain administrative services from a party designated by Shell, called Centric. Shell has also appointed another party, namely KPMG. 

The employees of Centric, who performed the relevant administrative services for Shell franchisees, demanded that there be a transfer of undertaking, in the sense that the employees in question have now automatically become employees of KMPG under the law (section 7:662 ev BW). 

The Court of Appeal ruled that the client has remained the same, the same clientele (the franchisees) are being served and the activities have been transferred without interruption from Centric to KPMG. However, the question is whether the identity of the “economic unit” concerned has been preserved. This is not the case if there is labour-intensive activity that does not involve the transfer of any significant assets. The Court of Appeal ruled that the mere digital access to Centric’s digital (transaction) systems by KPMG cannot be regarded as such an asset. The Court of Appeal concludes that there is no transfer of undertakings and that Centric’s employees have therefore not been employed by KPMG. 

The question of whether there was a transfer of undertaking is important for the franchise relationship, because a transfer of undertaking from one ‘preferred supplier’ to another could conceivably have a cost-increasing effect, which could have repercussions on the franchisor and/or the franchisee. When a franchisor designates a new ‘preferred supplier’ for its franchisees, account must be taken of the possibility that there could be a transfer of business between the old and new ‘preferred supplier’. In addition, the question arises whether Article 2.3 sub g of the Dutch Franchise Code would simply allow the designation of a ‘preferred supplier’ here. 

mr. AW Dolphijn – Franchise lawyer 

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