Currently, the Dutch Civil Code ("DCC") does not include any franchise-specific provisions. This may change soon, however, and we are happy to give you a brief roundup on the most important aspects of the proposed Dutch Franchising Act.
The Dutch Franchising Act ("DFA") has been a long time in the making. On 12 December 2018, the Ministry of Economic Affairs and Climate Policy and the Ministry of Justice and Security published the jointly drafted DFA for public consultation. All stakeholders had the opportunity to submit their input on the draft DFA until 31 January 2019. To accompany the draft DFA, the Ministries also published an Explanatory Note (Memorie van Toelichting).[1] The Explanatory Note gives insight into the content of each article of the DFA. The main objective of the DFA is to create solid statutory protection for franchisees, which is not currently explicitly there.
Statutory protections for franchisees
A few focus points of the proposed DFA are:
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The pre-contractual exchange of information and "cooling off period"
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There will be an obligation to disclose in a timely manner all information which may be reasonably relevant for the other party. For example, the franchisor is required to provide detailed financial information based on careful and thorough location survey. Further, the franchisor is also obliged to perform due diligence on the franchisee with regard to their entrepreneurial qualities and resources.
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"Cooling off period": Prior to concluding the franchise agreement, the franchisor will have to give the franchisee a period of at least 4 weeks in which the franchisee will be able to review all relevant information and assess its the obligations and risks. During the "cooling off period" the terms of the agreement may not be changed, unless the changes favour the franchisee.
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Termination of a franchise relationship
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Value of goodwill: The DFA creates a goodwill obligation towards the franchisee.
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Non-competition clauses will be limited to one year after termination and their scope may only cover the geographic territory where the franchisee was allowed to operate its business during the franchise relationship.
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Consultations between franchisors and franchisees and interim modification of an ongoing agreement
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The draft DFA requires prior consent of the franchisee for certain action by the franchisor, which may significantly affect the franchisee, such as material changes to the franchise formula and policies. Prior consent is possible either (i) by a 2/3 majority of the representative body of the franchisees in a specific franchise or (ii) if there is no relevant representative body which can make a decision for all franchisees, the franchisor will need to obtain the consent of all individual franchisees who experience or may experience the consequences thereof.
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Consequences for your business
If the DFA is passed, the Netherlands will join many other countries which have statutory franchise-specific rules in place. Clearly, the DFA addresses the concern that the franchisee is the weaker party in a franchise relationship and tries to solve this by putting into place certain statutory safeguards.
The DFA speaks of the principle of a "good franchisor" and "good franchisee". As such, this concept is arguably not an entirely novel, since the DCC already includes a provision according to which parties have to treat each other reasonably and fairly. Franchisors will, however, have to be more cautious when providing (or omitting to provide) information to the (prospective) franchise and take into account the possible goodwill compensation. The DFA certainly makes the position of the franchisees stronger, although suggestions that it may serve to stifle innovation may be somewhat overstated.
Manish Bahl
+31 20 225 2219
+31 6 144 811 98
Andrea Sindova
Andrea.Sindova@fieldfisher.com
+31 20 225 2222
+31 6 573 622 81
[1] In general: Explanatory Notes include the reasons for any type of (proposed) legislation and usually addressed the content of each individual article of the specific legislation. Courts often consider the Explanatory Notes when interpreting laws in contentious cases.