Non-compete clause on the sale of a franchise business
How strict should a non-compete clause be when selling a franchise business to the franchisor? That question was raised in a dispute in which the District Court of Gelderland ruled on 6 September 2017, ECLI:NL:RBGEL:2017:68800.
It can be concluded from the published ruling that a franchisee sold the Douglas company back to franchisor Douglas at some point. Apparently part of that sale was that the former franchisee could continue to operate a business at the same address, but that no business could be run there to sell “perfumery products” to consumers.
It also seems that the former franchisee in question has joined another franchise organization that developed the franchise formula for the purpose of operating a beauty salon. After hearing various witnesses, the court considers that, after the sale of the company to Douglas, products were only sold from the business premises to people who have undergone a treatment in the beauty salon and who are (therefore) in the customer base, because there are occasionally products were sold without also undergoing a beauty treatment or there was registration in the customer base or an exceptional situation was involved. The sale of the products was thus subject to significant restrictions, with the emphasis of the exploitation being on the beauty treatments and not on the sale of products. Furthermore, it has not yet emerged that there is any question of the sale of the prohibited “perfumery products”. The products that were sold also included bracelets and wallets. The relationship between the beauty treatment and the products offered for sale should be seen in a broad sense and, in addition to perfume, also included some make-up products, etc., which customers could use during and after the treatment in the beauty salon. The court therefore rules that the non-compete clause has not been violated.
It sometimes proves difficult to describe exactly in a non-compete clause which activities can and cannot be regarded as competitive. A franchisee who wants to switch to a different formula, which could somewhat resemble the formula that is currently being operated, would do well to open up his cards in advance.
mr. AW Dolphijn – Franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to dolphijn@ludwigvandam.nl .
Other messages
Franchisee circumvents non-competition clause through partner – mr. RCWL Albers – dated February 24, 2022
In a recent case, a graphics services franchisor attempted to ...
Article De Nationale Franchise Gids: “Changing the franchise formula is possible” – mr. T. Meijer – dated February 8, 2022
Many franchise formulas are constantly evolving. The adage 'to stand ...
Corona justifies halving the franchise fee – mr. RCWL Albers – dated February 1, 2022
In a recent ruling by the Amsterdam Court of Appeal, ...
Can a franchisor increase the interim franchise fee and change the formula? – mr. AW Dolphijn – dated January 21, 2022
A franchisor must be able to adjust the franchise formula ...
Franchise agreement with free PLUS entrepreneur canceled – mr. AW Dolphijn – dated January 19, 2022
It is not often that a supermarket organization terminates an ...
Article De Nationale Franchise Gids: “Franchisee exclusively bound by a non-compete clause as a private company” – mr. M. Munnik – dated January 11, 2022
On December 22, 2021, the Rotterdam District Court issued an ...