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
How do I keep my location? – June 6, 2019 – mr. K. Bastian
Location is of great importance to franchisors and franchisees, especially in the retail sector.
Supermarket letter – 25
Supermarket Newsletter No. 25
The benchmark for franchise forecasts – dated 29 May 2019 – mr. AW Dolphin
On 19 March 2019, the Den Bosch Court of Appeal, ECLI:NL:GHSHE:2019:1037, listed the case law of the Supreme Court on prognosis in franchising.
Franchise arbitration: too high a threshold? – mr. M. Munnik
When entering into an agreement, it is possible for the parties - contrary to the law - to designate a competent court. This also applies to the franchise agreement. Of this possibility
Franchise appeal for error due to incorrect forecasts and lack of support rejected – dated April 25, 2019 – mr. K. Bastian
The Court of Appeal of 's-Hertogenbosch ruled (ECLI:NL:GHSHE:2019:697) on the question whether the mere fact that forecasts did not materialize justifies the conclusion that the franchisee has been shortchanged...
Article De Nationale Franchise Gids: “Increasing protection against recruiting franchisees” – dated 2 April 2019 – mr. AW Dolphin
It is becoming increasingly apparent that recruited franchisees can be protected on the basis of the Acquisition Fraud Act.