Cost price that is too high as a hidden franchise fee
An interim judgment of the District Court of The Hague dated 30 August 2017, ECLI:NL:RBDHA:2017:10597 (Happy Nurse), shows that the court considered the question whether the cost price charged by the franchisor to the franchisee was correct.
The franchise system is as follows. The personnel mediated by the franchisees enter into an employment contract with the franchisor and are paid by the franchisor. The franchisor invoices the hirers for the hours worked. After withholding a franchise fee, the franchisor also passes on the amounts received from the hirers to the franchisees.
The franchisees independently determine the rate for the staff to be borrowed. This rate includes a cost price. The cost price must be determined by the franchisees themselves on the basis of the so-called “wage cost price conversion factor”. This “wage cost conversion factor” is determined annually by the franchisor. Among other things, that component does not excel in transparency.
The franchise agreements that the franchisor concludes with the franchisees are materially similar to the franchise agreements that another franchise organization (Olympia) has concluded with its franchisees. In the judgment of the Court of Appeal of The Hague on 12 January 2016, ECLI:NL:GHDHA:2016:256 (J&P Consultants/Olympia), it was determined, among other things, that, insofar as the compensation for the cost price paid by the franchisees, in retrospect, the actual exceeds the cost price, this has been paid unduly (Article 6:203 paragraph 2 of the Dutch Civil Code) and can therefore be reclaimed by the franchisee.
The court follows this judgment and rules that a reasonable interpretation of the franchise agreement means that it is impermissible if the franchisor, by charging an excessive cost price, has created a second (hidden) franchise fee in addition to the franchise fee.
The court has not yet been able to determine whether there has actually been an excessive cost price charged and indicates that it intends to have this further assessed by experts.
mr. AW Dolphijn – Franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to dolphijn@ludwigvandam.nl .
Other messages
Article Franchise & Law No. 7 – Franchise agreement as general terms and conditions
Uniformity of the franchise formula and (therefore also) uniformity of the agreements with the franchisees will often be of great importance to the franchisor.
The franchisee’s customer base
If the partnership between a franchisee and a franchisor ends, the question of who will continue to serve the customers may arise.
The healthcare franchisor is not a healthcare provider
The Healthcare Quality, Complaints and Disputes Act (WKKGZ) creates the possibility of government measures being imposed on healthcare institutions to guarantee the required quality of healthcare.
The restructuring within the Intergamma formats from a legal perspective
The legal reality is sometimes more unruly than the factual. The controversial issue at Intergamma is a good example of this.
Open vacancy: lawyer-employee and/or lawyer-trainee!
Due to the departure of one of our colleagues, we are looking for a new lawyer-employee or lawyer-trainee. Interested?
Non-compete clause on the sale of a franchise business
How strict should a non-compete clause be when selling a franchise business to the franchisor? This question was raised in a dispute in which the District Court of Gelderland op