The new Franchise Act: are you already compliant?

Despite the fact that the new Franchise Act has not yet entered into force, the Amsterdam District Court did recently take it into account when assessing a dispute between a franchisor and a franchisee. So time to get started and make sure your franchise agreements are in line with the upcoming legislation.

Franchise Act Obligations

The new Franchise Act contains several obligations designed to make the relationship between franchisors and franchisees more balanced. These include provisions relating to the exchange of information, interim amendment of the franchise agreement, termination of franchise cooperation and consultation between franchisor and franchisee(s). From the entry into force of the Franchise Act, probably Jan. 1, 2021, franchisors and franchisees will have to comply with the obligations arising from it. Consequently, franchise agreements will also have to be amended to the extent they are not in compliance with the new legislation.

Franchise Agreement Modification

For modification of existing franchise agreements on some specific points, the Franchise Act provides a two-year transition period. These include provisions on goodwill, the non-compete clause and the consent requirement for changes to the franchise formula. The effect of the transition period is that existing franchise agreements must be amended on these points within two years of the Franchise Act coming into force. So one would think: we still have some time. What is remarkable, however, is that the District Court of Amsterdam recently considered the Franchise Act in a ruling. Reason enough to get to work quickly. What was going on?

Mandatory investment franchisee?

Franchisor Blokker demanded a conversion of its franchisees' stores to the new Blokker formula. One of the franchisees was unwilling to convert his store because of the financial investment required. According to Blokker, by not converting the store, the franchisee failed to fulfill his obligations under the franchise relationship, reason for Blokker to terminate the franchise agreement. Franchisee then held Blokker liable for damages suffered by him in connection with the termination of the franchise agreement. According to franchisee, Blokker should not have simply terminated the franchise agreement.

The question ultimately before us is whether franchisee was obliged to convert its store to the new formula. The franchise agreement itself did not stipulate anything in this respect. According to the District Court, it would have been Blokker's responsibility to lay down such obligations with far-reaching financial consequences in the franchise agreement. The Court referred here to the new Franchise Act, which includes and elaborates the general rule that franchisor and franchisee must carry themselves mutually as good franchisors and franchisees. In view of this, the court finds that Blokker should not have simply terminated the franchise agreement and therefore owes damages to the franchisee.

Getting started with the Franchise Act

It can be inferred from this court ruling that the Franchise Act is already important even now, despite the fact that it has not yet taken effect. So time to get started, and see if the franchise agreements used by your organization already comply with the Franchise Act.

Do you have questions about the new Franchise Act or its obligations for your organization? If so, please contact Valerie Lipman or Joost van Dongen.

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