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
Article Franchise+ – Franchisees enjoy the same protection as employees and commercial agents with regard to a non-competition clause – dated 7 May 2020 – mr. RCWL Albers
It often happens that, especially by franchisees, the validity of a post-contractual non-compete clause is considered too lightly.
The support agreement for the Retail sector in this Corona crisis – dated 15 April 2020 – mr. K. Bastian
On April 10, 2020, the Ministry of Economic Affairs, together with a number of landlords, retailers and banks, reached a support agreement.
Court rules that corona crisis does not constitute force majeure – dated April 10, 2020 – mr. AW Dolphin
If payment cannot be made due to a decrease in income, then there is not always a force majeure situation.
Important information for directors of franchisees associations: Online meetings and decision-making in times of corona – dated April 10, 2020 – mr. J. Strong
Emergency law provisions for legally valid decisions without physically meeting within the association structure.
Unilateral amendment of the franchise agreement by the franchisor allowed? – dated April 7, 2020 – mr. K. Bastian
Is the franchisor allowed to implement certain announced changes/adaptations to the formula on the basis of the franchise agreement agreed between the parties?
Legal scientific publication: “Collective actions of franchisees” – dated April 2, 2020 – mr. AW Dolphin
An article by mr. Alex Dolphin