How far does the non-competition clause extend?
The Supreme Court recently issued a judgment regarding a non-competition clause in a franchise relationship.
From a specifically established private company, X supplies automation work to the competitor of the former franchisor. The franchisor has previously purchased X’s business. The question arises to what extent X has violated the non-competition clause in the purchase agreement by selling to the competition. Strictly speaking, the automation activities do not fall under the core activity of the ordered and intended under the non-competition clause. However, the franchisor shows that the activities have been used as a cover, since X is closely involved in the creation of a formula that competes with him. The activities turn out to be specifically aimed at the competitor’s store concept and, moreover, are not supplied to other customers.
Both the District Court and the Court of Appeal come to the conclusion that there is indeed a cover-up and that the non-competition clause should therefore be honoured. X is sentenced to pay very high fines, rising to more than € 800,000 on appeal.
The Supreme Court rules that the Court of Appeal has not ruled on correct grounds and refers the case to another Court to reassess the whole. However, the case shows that constructions used to circumvent the non-compete clause are extremely risky.
A franchisee who has doubts about the interpretation of the non-compete clause would be wise to carefully and carefully consider whether or not the new activities fall under this clause. Coordination with the former franchisor can prevent many problems in this regard. If this does not yield results, a very careful consideration in another way is necessary.
Mr Th.R. Ludwig – Franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice Would you like to respond? Mail to ludwig@ludwigvandam.nl
Other messages
Unlawful termination of dealer agreement
The Court of Appeal in The Hague recently ruled in a case in which an importer and distributor of a car brand had terminated an agreement with one of its dealers.
Jurisdiction of the subdistrict court in cases of misrepresentation
The assessment of disputes about a (sub)lease agreement is assigned by law to the specialist sub-district court, while disputes about a franchise agreement are, in principle, dealt with by the '
It’s right in the shopping street
It's right in the shopping street
Unilateral increase in franchise fee
Unilateral increase in franchise fee
Franchise Frühstück Consultants House GmbH
On February 20, 2011, Mr. DL van Dam participated by invitation in a “Franchise Frühstück”, organized by Consultants House GmbH, Mr. Jörg Eckhold, one of the leading franchise co
Arbitration clause in general terms and conditions/franchise agreement
Recently, the Amsterdam Court of Appeal ruled on an issue centered around the question of whether the arbitration clause included in the general terms and conditions had been legally agreed upon.