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
Duty of care franchisor in the pre-contractual phase
The District Court of Limburg ruled on 6 April 2017, ECLI:NL:RBLIM:2016:2843, that the franchisor has a duty of care towards the prospective franchisee in the pre-contractual phase.
Franchisee avoids joint and several liability in private
In a judgment of 28 March 2018, ECLI:NL:RBROT:2018:2913, the District Court of Rotterdam ruled on the meaning of the clause in the franchise agreement stipulating that
Incorrect prognosis due to lack of location research
The District Court of The Hague ruled on 21 March 2018, ECLI:NL:RBDHA:2018:3348, that a franchisor's forecast was unsound, as a result of which the franchisee had erred and the franchisor
Column Franchise+ – “Disputes about franchise fees”
Lately, it has also hit the biggest franchise organizations in the Netherlands. At the formulas of Albert Heijn, Hema, Etos, Bruna and Olympia, for example, there was and will be a lot
Ludwig & Van Dam sponsor of the Franchise Trophy 2018
On May 24, 2018, VVD member of parliament Martin Wörsdörfer and ID&T founder Duncan Stutterheim will present the Franchise Trophy 2018 on behalf of the Dutch Franchise Association.