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
Infringement of franchisee’s exclusivity rights: franchisor liable
Franchise agreements often contain exclusivity provisions that give franchisees exclusive rights
Advantage in the event of an illegal supply stop
Advantage in the event of an illegal supply stop
No contractual penalty for non-compete violation
No contractual penalty for non-compete violation
The AD of September 14, 2016, mr. Alex Dolphijn of Ludwig & Van Dam about wanting to share with franchisees in the online revenue of franchisor web shops.
The AD of September 14, 2016, mr. Alex Dolphijn of Ludwig & Van Dam about wanting to share with franchisees in the online revenue of franchisor web shops.
Interview Mr. Alex W. Dolphijn at BNR Nieuwsradio about the further escalation of Bruna’s long-running conflict with its franchisees
Interview Mr. Alex W. Dolphijn at BNR Nieuwsradio about the further escalation of Bruna's long-running conflict with its franchisees
Front page of Het Financieele Dagblad and on page 3 dated 8 September 2016; mr. Alex Dolphijn of Ludwig & Van Dam about the further escalation of Bruna’s long-running conflict with its franchisees.
Front page of Het Financieele Dagblad and on page 3 dated 8 September 2016; mr. Alex Dolphijn of Ludwig & Van Dam about the further escalation of Bruna's long-running conflict with its franchisee