Competing without a non-competition clause?
The franchise non-compete obligation remains a source of dispute. The Court of Appeal of ‘s-Hertogenbosch ruled on 27 May 2014 (ECLI:NL:GHSHE:2014:1502) on a matter that raised the question whether competing activities were permitted because no non-compete clause had been agreed.
A franchise entrepreneur of a funeral company sells his company to another. The buyer enters into a franchise agreement with the franchisor. After some time it turns out that the seller arranges funerals in the area where he was also active before the sale of his company.
The court, like the court, is of the opinion that the seller was not allowed to arrange funerals and was allowed to keep the profit. After all, the seller had sold that part of the company to the buyer for good money. It follows from the requirements of reasonableness and fairness that the seller must refrain from competing with the company that he has sold. This also applies if, as here, the parties have not included a non-competition clause in the purchase agreement.
The selling party is itself one of the partners of the franchisor. The franchisor is a general partnership. The franchise agreement prohibits the franchisor from entering into franchise agreements with other franchisees for a particular territory. It was therefore all the more true that the seller’s competitive activities within the territory were unacceptable.
This issue once again shows the importance of clear agreements. When transferring franchise companies, it is always wise to agree on the subject of competition. Even if it is agreed that no restriction of competition applies, it is also important to record that.
Mr AW Dolphijn – Franchise lawyer
Ludwig & Van Dam Franchise attorneys,franchise legal advice. Do you want to respond? Mail to dolphijn@ludwigvandam.nl
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Franchise Board Rules
In practice, various forms of consultation circulate between franchisor and franchisee.
Developments in competition law
Some time ago, the Netherlands Competition Authority (NMa) made a groundbreaking ruling that is of great importance to all franchise organizations in the Netherlands.
Transfer Arrangements
Franchise agreements usually include transfer arrangements
The right to the formula name upon termination of the franchise relationship
In practice, discussions regularly occur when the franchise relationship is terminated between a franchisor and one or more franchisees
The possibility of actively or not actively recruiting customers outside
Based on the relevant regulations, active recruitment activities by the franchisee are permitted
Customers, clientele and exceptions thereto
Some franchise constructions have the characteristic that the products or services in question are only supplied to certain consumers.