In June 2020, the Dutch parliament accepted the Franchise Bill. This will become law at a later date, established by royal decree. How will it affect businesses that operate through franchise agreements in the Netherlands? Key takeaways and recommended actions for General Counsels.
Key takeaways
Franchise relationships will be subject to specific rules. These are set out in more detail below. Parties can’t deviate from these rules to the detriment of franchisees established in the Netherlands, even when Dutch law doesn’t govern the franchise relationship. The rules relate to information duties, changes to the franchise formula, and goodwill, among other things.
Recommended actions
The new rules may affect any franchise agreements concluded with franchisees established in the Netherlands after the franchise law has taken effect. So this will also affect existing franchise agreements. This is because, from the date on which the law will take effect, the new rules will also apply to any franchise agreements concluded prior to that date (subject to a few exceptions).
Any General Counsel whose business exploits franchise agreements with franchisees established in the Netherlands should verify if and how the new franchise law will affect its franchise agreements.
Prior to this law, the general rules of the Dutch law of obligations governed franchise relationships. The franchise law introduces a specific legal framework setting out detailed rights and obligations for the franchisor and franchisee. Here are the key elements that GC’s should pay attention to:
- Information duties – The franchisor must promptly provide the franchisee with specific information, such as a draft of the agreement, information on fees and other charges or costs due, financial information with respect to the intended franchise location and any other information that may be relevant to the conclusion of the franchise agreement.
- Assistance – The franchisor must provide specific assistance to the franchisee.
- Changes formula – If the franchisor wants to make a change to the franchise formula that entails financial effects for the franchisee, it may need prior consent from the franchisee or from the majority of its franchisees established in the Netherlands.
- Goodwill – If the franchisor or another franchisee takes over the franchisee’s company, the franchisee may be entitled to goodwill. The franchise agreement must address this matter. Post-term non-compete – If the franchisor wants to impose post-term non-compete obligations on the franchisee, it must meet specific conditions. For example, this non-compete must be in writing and may not exceed a term of one year.
- No deviations – The law is mandatory in nature; the parties can’t deviate from the law to the detriment of any franchisee that is established in the Netherlands, regardless of the law that governs the franchise agreement.
