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The Franchise Act provides franchisees with robust protection, with new rules at both the beginning and the end of the franchise relationship. Two key points: an extensive pre-contractual duty to provide information with a cooling-off period, and strict limits on the non-compete clause after termination.
Protection at the start: the duty to inform
Before a franchise agreement is concluded, the franchisor must inform the prospective franchisee in a timely and complete manner. This includes, among other things, the draft agreement, financial information, and details regarding the franchise system. Furthermore, a cooling-off period (standstill) applies during which the franchisor may not induce the franchisee to sign or make investments. This allows the franchisee to make a well-considered decision.
Protection at the end: the non-compete clause
A non-compete clause that restricts the franchisee after the termination of the agreement is only valid within strict limits. It must be in writing, be indispensable for the protection of know-how, and be limited in duration (in principle at most one year) and to the territory in which the franchisee was active. A broader clause will not hold up.
Also for existing agreements
The law applies not only to new but also to existing franchise agreements. Certain elements, such as agreements regarding goodwill, consent, and non-competition, must be amended in existing contracts. Therefore, review your agreement in a timely manner to ensure it complies with legal requirements.
What does this mean for you?
If you are a franchisor, ensure that your information provision and contracts comply. If you are a franchisee, utilize the protection the law offers you. In both cases, a legal review of the agreement is worthwhile.
Frequently Asked Questions
What does the duty to provide entail?
The franchisor must provide timely and complete information in advance, including a cooling-off period during which he may not induce the franchisee to sign or invest.
How long may a non-compete clause last after expiration?
In principle, at most one year, in writing, indispensable for the know-how, and limited to the territory of the franchisee.
Does the law also apply to my current contract?
Yes. Certain parts of existing agreements must be adapted to the law.
Make your franchise agreement Franchise Act-compliant?
Our legal experts review and draft your franchise agreement in accordance with the Franchise Act. View our franchiseteam or schedule a free consultation.
