Article De Nationale Franchise Gids: “The Franchise Act: what should I do with it?” – mr. DL van Dam – dated March 9, 2021

It has of course not escaped the attention of most parties in the franchise industry that the Franchise Act came into effect on 1 January 2018, as part of Book 7 of the Dutch Civil Code (BW), Articles 7:911 to 7:922 thereof . Much has been written about the content and purport of that law and a number of evaluation processes have now taken place regarding the way in which the law affects franchise relationships in practice. The outcome of these evaluations is diverse, but some things stand out.

Firstly, despite all the publicity, there is still a significant number of franchise organizations that are unaware of the existence of the new law. Secondly, a number of organizations have chosen to do nothing with the new law (for the time being). However, both situations are highly undesirable for several reasons.

As mentioned, the Franchise Act is part of the Civil Code. This is one of the most important pieces of legislation in the Netherlands, to which everyone is expected to comply and which largely determines how and in what way citizens and companies behave among themselves and towards each other. Parts of the Civil Code are “regulatory” in nature, and they may be deviated from to a greater or lesser extent, but large parts are mandatory. Therefore, it cannot be deviated from. Art. 7:922 of the Dutch Civil Code prescribes that the law may not be deviated from to the detriment of franchisees . This makes the Franchise Act of so-called semi-mandatory law, and Art. 7:920 of the Dutch Civil Code, which deals with the goodwill present in the franchisee’s business, as well as the post-contractual non-compete clause, are fully binding, under penalty of voidability. The same evaluation processes show that in almost all cases the Franchise Act requires (sometimes significant) adjustments to the franchise agreement and related documents, as well as to the processes surrounding, for example, the conclusion of a franchise agreement. This includes, for example, the pre-contractual information obligations arising from art. 7:913 and 7:914 DCC, but almost every article of the law has some effect.

Every citizen is supposed to know the law. In court, the defense “I didn’t know about the law” never works. Unfamiliarity with the Franchise Act therefore entails a major risk and, in the event of any conflict in which this Act plays a role, will in almost all cases be to the detriment of a franchisor. This is therefore a task for all (representatives of) franchise organizations to fill this information gap. Primary responsibility for this rests with the franchisor, but franchisees can also play an important role in those situations where they find that their franchisor is not taking any action with regard to the Franchise Act. Application of the law is often in their direct interest and they also have a responsibility to contribute to ensuring that their franchise agreement is “franchise law compliant “. When a franchisees’ association is active, it is often the appropriate body to take (collective) action in this regard. It seems reasonable to assume that once the franchisor concerned has been made aware of the Franchise Act and its consequences, he will take the necessary measures in this regard, as so many have done before him.

Of a different order, however, is the situation in which the franchisor in question deliberately chooses not to bring its agreements and working methods into line with the Franchise Act. The reasons for this can be many, for example existing conflict situations with franchisees or other interests, but it follows from the foregoing that there is simply no such thing as a choice. As of 1 January 2021, the Franchise Act will in any case apply to all franchise agreements in the Netherlands, with the exception of some more unusual exceptions, and by its very nature imposes a duty on all parties involved to be compliant in this respect. If a franchise agreement does not, then the Franchise Act applies. In any case , non-compliance creates an unclear situation that is prone to much misunderstanding and possibly conflict. If the franchise agreement deviates only on minor points, the consequences may still be manageable, but in case of major discrepancies, where the existing franchise agreement is continued to be applied, this can lead to justified claims by franchisees for tort, attributable shortcoming and possible error. It is to be expected that the judge will not judge kindly when the law is deliberately not observed. Moreover, such a working method cannot be reconciled with good franchisorship and the starting point of Section 7:912 of the Dutch Civil Code in this respect. The reasoning “it doesn’t matter, the law still applies” is therefore a fairly risky one, and can only be maintained for a short time in very specific, temporary exceptional cases, but even then not without risk.

The conclusion is therefore that the franchisor and franchisee must, where appropriate, make every effort as soon as possible to bring their franchise agreements and related documents and working methods into line with the Franchise Act. It is good franchisor and franchisee practice to point this out to each other if necessary and to urge them to take action.