The Real Intentions of the Parties to a Franchise Agreement – Mr. C. Damen – dated November 23, 2020

What really was the idea of ​​the parties when they concluded a franchise agreement? This question is regularly raised when parties disagree about what kind of agreement they have concluded. With major consequences for the contracting parties if, according to the court, it turns out to be a different type of agreement.

Until recently, it sufficed to include the parties’ intentions in a preamble with the phrase: “the parties intend to enter into a franchise agreement” . In practice it appears that even in that case the court can still qualify the franchise agreement as a different type of agreement, despite the fact that the parties themselves write that a franchise agreement is envisaged. An undesirable qualification for the legal relationship between the parties under a different regime, for example the agency or distribution agreement, can lead to far-reaching legal consequences for the parties. On 6 November 2020 (ECLI:NL:HR:2020:1746), the Supreme Court ruled that the question whether there is an employment contract, the parties intended to enter into an employment contract as an independent element is no longer relevant. This ruling is also relevant for the franchising practice.

According to the Supreme Court, it is irrelevant whether the parties actually intended to have the agreement fall under the statutory provision of the employment contract. What matters is whether the rights and obligations agreed between the parties comply with the legal description of the employment contract.

Article 7:610 of the Dutch Civil Code defines the employment contract as the agreement in which one party, the employee, undertakes to perform work for a certain period of time in the service of the other party, the employer. If the content of an agreement meets this description, the agreement must be regarded as an employment contract. This can have significant consequences for the legal relationship between the parties. After all, an employment contract has a high degree of mandatory legal protection in favor of the employee and consequently weighty obligations for the employer.

It is now no longer relevant what the intention of the contracting parties is when asking whether there is an employment contract, as a result of which standard text in the preamble, such as “the parties expressly do not wish to enter into an employment contract” , loses its meaning. With this, the Supreme Court seems to be following an earlier advice from the Advocate General – in which it was proposed to draw an end to the ‘Groen/Schoevers’ judgment. In that judgment, the party’s intentions played an important role as an independent element in the qualification question of whether there is an employment contract. That now seems to have come to an end. Important for the question of whether there is an employment contract is therefore whether the elements of Article 7:610 of the Dutch Civil Code have been complied with and what effect the parties actually give to the collaboration.

This may also apply to the qualification question of whether there is a franchise agreement. The Franchise Act will come into effect on 1 January 2020. Section 7:911 of the Dutch Civil Code (new) stipulates that, if one party grants the other the right and the obligation, against payment, to exploit a formula in a prescribed manner for the production or sale of goods and/or the provision of services , there is a franchise agreement. There is regular disagreement about whether there is a franchise agreement, agency agreement and/or distribution agreement. In the service franchise in particular, this dividing line does not always seem clear.

Partly in view of the mandatory legal regime of the Franchise Act, it is important to ensure that the parties in the franchise relationship actually comply with this. This means that in practice the elements of Section 7:911 of the Dutch Civil Code (new) must be present. The party intentions included in the preamble (such as “the parties intend to enter into a franchise agreement” ) are therefore no longer relevant as an independent element.

mr. C. Damen – Franchise Attorney

Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to damen@ludwigvandam.nl