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
![](https://ludwigvandam.megaconcept.nl/wp-content/uploads/2020/12/232court-min-400x222.jpg)
Other messages
Recoverability in times of crisis
A recurring theme in this contribution to the First Franchise Newsletter is payment discipline
Termination of a dealer agreement in relation to price maintenance
At the end of 2007, the Court of Appeal in Arnhem issued an interesting ruling concerning
Restyling forecasts
As is well known, a good franchisor offers its franchisee a good deal at the start
Nuanced franchise agreement on the grounds of error is a nuanced consideration
The Court in preliminary relief proceedings in Rotterdam recently ruled that a franchisor is not automatically responsible
The duty to offer in the franchise agreement is not valid
Recently, the Court of Appeal determined that an obligation of the franchisee
Franchise agreements of an indefinite term cannot be terminated just like that
Contrary to what is sometimes thought, franchise agreements for an indefinite period cannot be terminated just like that.