Will NFC come to an end of non-competition clause?

The president of the court very recently ruled that the operation of the non-compete clause in a franchise agreement is suspended for the benefit of the franchisees.

The franchisees in question are all professionals with banking expertise in a specific field who are seconded to banks. Uncertainty has arisen with regard to the (fiscal) independence of the franchisees, which is why the franchisees have terminated the franchise agreements. The franchisor holds franchisees to the post-contractual non-compete and relationship clauses included in the franchise agreement. The franchisees have argued, among other things, that the franchisor has no interest in compliance with the post-contractual provisions, because the know-how transferred by the franchisor does not meet the criteria from case law and regulations introduced in this matter.

It has not been shown that the franchisor has transferred concrete, material, specific and secret knowledge, within the meaning of the definition used by the applicable case law and regulations in this case; further requirements for the concept of “Know how”. This definition of know-how is subject to very high legal requirements in (competition) regulations. The draft Dutch Franchise Code (NFC) uses the same criteria for a non-compete clause. In practice, hardly any franchise organization in the Netherlands will be able to meet this requirement. In concrete terms, this means that franchisees can often relatively easily get rid of the non-compete clause if the NFC is actually adopted. For them, the way to the exit seems quickly found. Franchisors will have to look for other ways to protect their franchise organization if they accept the NFC. Various codes abroad do not apply these criteria.

Conclusion

For a successful appeal it is necessary that the franchisor has a legal interest to be respected, which is not limited to transferred know-how or an identity or reputation to be protected. Other circumstances may also mean that invoking the non-compete clause on the part of the franchisor is unreasonable, see for example https://www.ludwigvandam.nl/content/concurrentiebeding-sneuvelt-kort-geding-15-april-2014-mr-rcwl albers. Competition law restrictions can also play a role in assessing the legality of a non-compete clause, see https://www.ludwigvandam.nl/content/non-concurrentiebeding-te-ruim-dd-12-januari-2016-mr-rcwl albers. It is therefore advisable to take all circumstances into account when formulating or in the event of a possible dispute about a non-compete clause and to seek further advice in case of doubt. The same applies, of course, to the question of whether a non-compete clause currently used is legally valid under current regulations, and – perhaps – in the future under the NFC.

mr. RCWL Albers – Franchise Attorney

Ludwig & Van Dam Franchise attorneys, franchise legal advice.

Do you want to respond? Go to albers@ludwigvandam.nl