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 .
![232court-min](https://www.ludwigvandam.nl/wp-content/uploads/2020/12/232court-min.jpg)
Other messages
Is it allowed to suspend payments?
Suspension is the case when a debtor (temporarily) postpones the fulfillment of its obligations
Timely addressing parties in case of problems
What to do if you notice irregularities in your franchise relationship? It's always a consideration.
Possible pitfalls of a starting franchisee
Starting a business on the basis of "franchising" is in.
Franchise council: necessity or wisdom?
When developing a franchise organization, the usefulness and necessity of a franchise council is invariably discussed.
Pre-agreement, letter of intent
A so-called pre-agreement is occasionally concluded before entering into a franchise agreement.
What to look for when selling the franchisee’s business? Common interests and practical tips
If the franchisee wishes to sell his company, a number of things should be taken into account.