Post non-competition ban on services and sales franchise
When a franchise agreement ends, many franchisees encounter a prohibition in the franchise agreement to perform similar work for a certain period of time thereafter. Such a post-non-competition ban can sometimes be extremely onerous. On the other hand, it has not been agreed for nothing.
The District Court of Rotterdam ruled in preliminary relief proceedings (ECLI:NL:RBROT:2018:9610) on the question of whether a franchisee could still escape the prohibition of competition after the end of the franchise agreement.
Protection of know-how and assistance provided
The franchisee wrongly argues that no know-how was transferred. This transfer would be evidenced by training, meetings and updates. With reference to the Pronuptia judgment (CJEU 28 January 1986 no. A161/84, ECLI:NL:XX:1986:AC9213), the court rules that, in addition to know-how, assistance provided by the franchisor in the application of the (commercial) methods may be protected by means of a non-compete clause.
Know-how in service and sales franchising
In contrast to sales franchising, service franchising means that the franchisee could have acquired the necessary knowledge (entirely) for the provision of those services. In those cases, a non-compete clause could then be set aside because hardly any know-how has been transferred. This is the case, for example, in the judgments of the District Court of Overijssel of 22 June 2016 (ECLI:NL:RBOVE:2016:2914) and 21 September 2016 (ECLI:NL:RBOVE:2016:3742). However, in the present case there is talk of sales franchising.
Analogy to labor law
The franchisee referred to the rules in employment law. Article 7:653 paragraph 4 of the Dutch Civil Code stipulates that an employer cannot derive any rights from a non-competition clause if the termination or non-continuation of the employment contract is the result of seriously culpable acts or omissions on the part of the employer. It is common ground that the present case does not involve an employment contract, but a franchise agreement. So the comparison does not hold.
Unreasonably onerous general condition
Under certain circumstances, provisions in franchise agreements may qualify as general terms and conditions if they are designed to be incorporated into a number of agreements, with the exception of clauses that indicate the core of the performance. If the non-competition clause could be qualified as a general condition, it could perhaps be affected due to unreasonable objection. However, the preliminary relief judge rules that the non-compete prohibition is indispensable for the protection of the know-how transferred by the franchisor and the assistance provided that there is a core clause.
Conclusion
In this case, the franchisee was bound by the prohibition of competition after the end of the franchise agreement. However, a non-competition prohibition is not inviolable in all cases. For example, if no know-how has been transferred and no assistance has been provided. This is apparently more likely to be the case with service franchises than with sales franchises. However, this is by no means a hard rule.
mr. AW Dolphin – franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to dolphijn@ludwigvandam.nl
![242Foto-doorlichten-fr.org](https://www.ludwigvandam.nl/wp-content/uploads/2020/12/242Foto-doorlichten-fr.org_-scaled.jpg)
Other messages
More clarity on online sales through renewed block exemption regulation for vertical agreements
As of June 1, 2022, the renewed block exemption regulation ...
Franchisor bound by its own failed dispute settlement procedure
Franchise organizations sometimes have their own dispute resolution procedure. Can ...
Goodwill Transfer: Include Google Business Profile?
What is transferred goodwill? This question can be very relevant ...
Not know-how, but fine decisive for compliance with non-compete clause
From mid-2016, franchisees regularly stated that their (former) franchisor had ...
Violation of ‘good franchisorship’ leads to dissolution of the franchise agreement
The obligation of franchisor and franchisee to behave towards each ...
The franchise agreement under suspensory condition: major consequences
The Court of Appeal in The Hague recently bowed its ...