No franchise agreement, but membership of a cooperative

In certain cases, agreements made in a franchise agreement may be limited by legal rules. Such a case occurred in a matter that is apparent from a ruling of the Arnhem-Leeuwarden Court of Appeal, September 9, 2023, ECLI:NL:GHARL:2023:7816.

At Kubus, it has been decided to embed the franchise organization in a cooperative. Kubus offers its members a formula that, among other things, provides operational support in the areas of purchasing, software, marketing and training for entrepreneurs in administration, accounting and consultancy firms. Under the articles of association, the members have an agreement with Kubus, called a “member agreement”. This agreement stipulates that the entrepreneur owes an exit payment (goodwill) to Kubus upon exit.

Kubus demands payment of the agreed exit compensation from a departing entrepreneur. The entrepreneur refuses this and states that the condition of withdrawal is contrary to the law. The law stipulates that although the articles of association of the cooperative may attach conditions to this withdrawal, these conditions should not block the freedom to withdraw. The conditions must be in accordance with the purpose and intent of the cooperative. See article 2:60 of the Dutch Civil Code.

Kubus has argued that this case is not a member agreement, but a franchise agreement and that there is no exit condition within the meaning of Article 2:60 of the Dutch Civil Code, but a compensation for the end of the franchise relationship.

The question before the court is whether the entrepreneur, who is a member of the cooperative, is obliged to pay compensation upon termination of the collaboration, as agreed in the agreement with the cooperative.

The court ruled that the compensation itself was referred to as “exit compensation” in the agreement, and that the agreement was referred to as a “member agreement”. The fee is also due at the end of the membership. Such compensation must have a statutory basis under Article 2:60 of the Dutch Civil Code. However, the statutory basis that Article 2:60 of the Dutch Civil Code requires for a condition for withdrawal guarantees more than knowability and determinability. After all, a statutory basis also means an embedding in the legal entity law framework, in which compliance or violation of the statutes has significance with regard to, among other things, the validity of decisions, director’s liability and the right of inquiry. In addition, if conditions could be attached to withdrawal even without a statutory basis, it is no longer clear whether the requirements of maintaining the freedom of withdrawal and compliance with the purpose and scope of the cooperative also apply.

Because there is no statutory basis, the court rules that the obligation to pay the exit compensation cannot therefore rely on the agreed exit compensation, contrary to the mandatory legal provision of Article 2:60 of the Dutch Civil Code and Kubus. According to the court, Kubus has therefore chosen to embed its franchise organization in a cooperative, so that the mandatory legal framework of a cooperative applies to it.

The conclusion is therefore that the agreement between Kubus and the entrepreneur cannot be qualified as a franchise agreement, but as a membership agreement. This membership agreement involves legal frameworks that have not been met in this matter, as a result of which the agreement to pay an exit payment by the entrepreneur is not valid.