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
Ludwig & Van Dam attorneys summon Sandd and PostNL on behalf of the Sandd franchisees – dated 9 January 2020 – mr. AW Dolphin
The Association of Franchisees of Sandd (VFS) has today summoned Sandd and PostNL before the court in Arnhem. The VFS believes that Sandd and PostNL are letting the franchisees down hard.
Article The National Franchise Guide: “Why joint and several liability, for example, next to private?” – dated 7 January 2020 – mr. AW Dolphin
Franchisees are often asked to co-sign the franchise agreement in addition to their franchise, for example. Sometimes franchisees refuse to do so and the franchise agreement is not signed.
Ludwig & Van Dam Advocaten assists Sandd franchisees: Franchisees Sandd challenge postal monopoly in court – dated 12 November 2019 – mr. AW Dolphin
The Association of Franchisees of Sandd (VFS) is challenging the decision of State Secretary Mona Keijzer to approve the postal merger between PostNL and Sandd before the court in Rotterdam.
Franchisee trapped by non-compete clause? – dated October 21, 2019 – mr. AW Dolphin
The District Court of East Brabant has ruled that a franchisee was still bound by the non-competition clause in the event of premature termination of the franchise agreement.
Supermarket letter – 26
Supermarket Newsletter No. 26
Link franchise agreement and rental agreement uncertain? – dated October 14, 2019 – mr K. Bastiaans
It is no exception within a franchise relationship that the parties agree that the franchise agreement and the rental agreement are inextricably linked.