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
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Supermarket Newsletter – 27
Supermarket Newsletter No. 27
Bankrupt because the franchisor refused to sell the franchise company – dated January 28, 2020 – mr. AW Dolphin
The District Court of The Hague has dealt with a request from a franchisor to declare a franchisee bankrupt.
Prescribed shop fitting – dated January 28, 2020 – mr. AW Dolphin
The Midden-Nederland District Court has ruled on whether a franchisee is obliged to carry the shop fittings prescribed by the franchisor.
Ludwig & Van Dam attorneys summon Sandd and PostNL on behalf of the Sandd franchisees – dated 9 January 2020 – mr. AW Dolphin
The Association of Franchisees of Sandd (VFS) has today summoned Sandd and PostNL before the court in Arnhem. The VFS believes that Sandd and PostNL are letting the franchisees down hard.
Article The National Franchise Guide: “Why joint and several liability, for example, next to private?” – dated 7 January 2020 – mr. AW Dolphin
Franchisees are often asked to co-sign the franchise agreement in addition to their franchise, for example. Sometimes franchisees refuse to do so and the franchise agreement is not signed.
Ludwig & Van Dam Advocaten assists Sandd franchisees: Franchisees Sandd challenge postal monopoly in court – dated 12 November 2019 – mr. AW Dolphin
The Association of Franchisees of Sandd (VFS) is challenging the decision of State Secretary Mona Keijzer to approve the postal merger between PostNL and Sandd before the court in Rotterdam.