Switching franchisee from one franchise organization to another is not without risks
Court of Amsterdam
The court in Amsterdam recently ruled in a case where a franchisee switched from one franchisor to another, in the same industry.
Both the transferring franchisee and the new franchisor have a major responsibility in this regard. The new franchisor’s duty of care entails that the franchisor must investigate the facts and circumstances under which the franchisee is transferring. This should not only include a possible non-competition clause and its consequences, but also what the current obligations of the franchisee are towards the existing franchisor. It is insufficient if the new franchisor claims that it was not aware that there was a non-competition clause or that the transferring franchisee had outstanding obligations towards the old franchisor. If the franchisor simply cooperates in the transfer, i.e. without further active investigation, it may be unlawful towards the existing franchisor. For example, the disadvantage may be the transfer of customers from one franchise organization to another at the hands of the franchisee and the new franchisor. It does not matter that the franchisee camouflages activities by means of a private company, in which a third party, for example a family member, has formal control as the sole shareholder. This is where the court comes in.
Ultimately, the Amsterdam court concludes that both the new franchisor and the transferring franchisee are liable towards the old franchisor.
Careful consideration and an open card could have prevented all this.
Mr Th.R. Ludwig – Franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice
Do you want to respond? Mail to ludwig@ludwigvandam.nl
Other messages
Acquisition fraud vs. error in franchise forecasting
Who has to prove that the franchisor's forecast is unsound? In principle, this is the franchisee. If the franchisee invokes the Acquisition Fraud Act, it may be that
Obligation to sell back at the end of the franchise agreement
Franchise agreements sometimes provide that the franchisee is required to sell back purchased assets at the end of the franchise agreement.
Supermarket letter – 20
Uncertain legal position of Emté franchisees
Position of franchisees in franchisor restructuring
Franchisees must be adequately and generously informed in advance by the franchisor about the content and consequences of (further) agreements...
Interview Franchise+ – mrs. J. Sterk and AW Dolphijn – “Reversal of burden of proof in forecasts approved by court” – February 2018
The new Acquisition Fraud Act indeed appears to be relevant for the franchise industry, according to this article from Franchise+. Alex Dolphijn of Ludwig & Van Dam assists a franchisee in a
Article Franchise & Law No. 7 – Franchise agreement as general terms and conditions
Uniformity of the franchise formula and (therefore also) uniformity of the agreements with the franchisees will often be of great importance to the franchisor.