When does a franchisor go too far when recruiting franchisees?

By mr. A.W. DolphijnPublished On: 11-02-2019Categories: Dispute settlement, Franchise Agreements, Statements & current affairsTags: franchise agreement, franchisee, franchisor, label10, Prognosis, revenue forecast, tag2

In the judgment of the Court of Appeal of Arnhem-Leeuwarden on 5 February 2019, ECLI:NL:GHARL:2019:1024 the issue was whether the franchisor had acted impermissibly when recruiting the franchisees. The franchisor, Otto Simon, was accused of persuading the franchisees to enter into a franchise agreement for the exploitation of the Top1Toys through misleading texts on the franchisor’s website.

The franchisees are particularly concerned with the following passages on the website:

– “(…) the toy store with the best price level!”

– “As a Top1Toys entrepreneur, you are able to realize this best price level because you benefit from international purchasing advantages because you buy at the source.”

– “Although as an independent entrepreneur you do business for your own account and risk, joining Otto Simon means the full support of a professional and strong organization.”

– “You are provided with all the tools for such a business so that you can concentrate on the store, the range, your employees, but above all on your customer.”

– “Meanwhile, the business advice department has prepared a marketing report and an investment and operating budget. With this information you can go to the bank to apply for financing.”

– “The location is chosen from the available ‘white spot plan’ and, again depending on the module, must contain at least 5,000, 15,000 or 100,000 inhabitants.”

The franchisees emphasized that the franchisor is the expert in this case and that they could simply rely on the statements on the website.

The Court finds that the text on the franchisor’s website is aimed at potential franchisees and that therefore the assessment of whether this publication is misleading must be based on the knowledge and imagination of an averagely informed and observant (prospective) entrepreneur. The average commercial public should be aware of, and therefore not be influenced by, the fact that advertising often has a certain exaggeration. Against the background of those principles, the court does not consider the statements on the website of the franchisor to be misleading.

mr. AW Dolphin – franchise lawyer

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

When does a franchisor go too far when recruiting franchisees?

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