Franchise disputes

What we do

Since 2021, a new law applies to franchise relationships: the Franchise Act. The Franchise Act brings about changes for existing franchise relationships. For new franchise relationships, the Franchise Act presents various points of attention. We assist both franchisors and franchisees in various phases of the franchise relationship regarding topics such as:

• The interpretation of franchise agreements
• Pre-contractual obligations
• Termination of the franchise agreement
• Non-compete clauses
• Franchise formulas
• The sale of a franchisee business

Conflicts regularly arise between franchisees and franchisors. One way to resolve such a franchise dispute is through arbitration.
Arbitration is a private alternative to normal (government) judicial proceedings by judges. One of the advantages of arbitration is that a dispute can be settled quickly and accessibly. Parties voluntarily agree that the final recommendation of the arbitrator(s) is binding on both parties. The number of arbitrators must be odd, usually one or three. If three arbitrators are chosen, both parties select one arbitrator themselves, and the third arbitrator is chosen by mutual agreement. If one arbitrator is chosen, the assignment is based on mutual agreement. Arbitration is an excellent way to quickly resolve conflicts behind closed doors. The Dutch Franchise Association also advises franchisors and franchisees to resolve disputes via arbitration. As an alternative to arbitration, mediation can also be chosen.

Common franchise disputes are:

• Misrepresentation in revenue and profit forecast
• Breach of contract by franchisee or franchisor
• Sale of franchise location or sale of franchisor
• Adjustment of the franchise formula
• Disagreement over the goodwill

We have the knowledge and expertise to assume various roles during an arbitration case: from arbitrator to advisor. We have an experienced team of lawyers and legal experts in the field of franchise relations and arbitration. Contact us to discuss the possibilities.

The Franchise Act and franchise disputes

Since January 1, 2021, the Franchise Act has been in effect, included in Title 7.16 of Book 7 of the Dutch Civil Code (Articles 7:911 through 7:922 BW). These provisions are largely mandatory: you cannot deviate from them in the franchise agreement to the detriment of the franchisee. The Act is a common source of franchise disputes because it imposes new obligations on franchisors and franchisees:

• Pre-contractual duty to provide information (Articles 7:913 and 7:914 of the Dutch Civil Code): the franchisor must provide all relevant information, including the draft agreement and financial data, no later than four weeks before the conclusion of the agreement. The agreement may not be concluded during this so-called standstill period.
• Right of consent (Article 7:921 of the Dutch Civil Code): for significant changes to the franchise formula, the franchisor often requires the consent of the franchisees.
• Goodwill compensation (Article 7:920 of the Dutch Civil Code): the agreement must specify how the goodwill is determined and compensated upon acquisition by the franchisor.
• Non-compete clause (Article 7:920 of the Dutch Civil Code): a post-contractual non-compete clause may last a maximum of one year and must be limited to the territory in which the franchisee was active.

We assess whether your franchise agreement complies with the Franchise Act and assist you should a dispute arise regarding these obligations. Whether you are an internationally operating group or the independent entrepreneur with a single location on the corner of the street: our mixed teams of lawyers and in-house counsel understand your best interests.

The arbitration clause in the franchise agreement

Many franchise agreements contain an arbitration clause: the agreement that disputes will be submitted not to the ordinary (state) court, but to an arbitrator. Whether arbitration applies therefore depends on the wording of your agreement. An important principle is the separability of the arbitration clause (Article 1053 of the Dutch Code of Civil Procedure): the arbitration clause applies as an independent agreement. If the franchise agreement is annulled or declared void, this does not automatically mean that the arbitration clause also lapses. In principle, the arbitrator remains competent to rule on the validity of the agreement itself, for example in the event of a claim based on error or fraud. We assess whether the arbitration clause was validly agreed upon and what consequences this has for your dispute.

Arbitration or the ordinary courts in a franchise dispute?

The choice between arbitration and a state court is not straightforward in franchise disputes. We weigh the pros and cons with you:

• Expertise: in arbitration, parties select arbitrators with specific knowledge of the franchise industry, whereas a judge does not always possess that specialized knowledge.
• Speed ​​and confidentiality: arbitration typically proceeds faster and behind closed doors, which can protect the franchise formula and the relationship.
• Costs: Arbitration can be more expensive than ordinary legal proceedings because the arbitrators are paid by the parties. For a smaller franchisee, this can be a barrier; judges have sometimes ruled that an overly burdensome arbitration clause is contrary to reasonableness and fairness.
• Appeal: often, no substantive appeal is available against an arbitral award. Annulment is only possible on formal grounds (Article 1065 of the Dutch Code of Civil Procedure).
• Enforcement: an arbitral award only acquires the force of execution after permission (exequatur) from the preliminary relief judge (Article 1062 of the Dutch Code of Civil Procedure).

We advise you on the most appropriate route for your situation and assist you in both procedures. Read more about our overarching Arbitration.

How we assist you in a franchise dispute

Our approach to a franchise dispute proceeds step by step:

• Analysis: we review your franchise agreement, the arbitration clause, and the Franchise Act to clarify your position.
• Negotiation or mediation: where possible, we resolve the dispute amicably to protect the collaboration and the formula.
• Procedure: if you are unable to reach an agreement, we will conduct the arbitration proceedings (for example, before the Council of Arbitration) or the proceedings before the ordinary courts, from statement of claim to judgment.
• Enforcement: we take care of the authorization for enforcement and the collection of what is due to you.

Frequently asked questions about franchise disputes

Am I required to resort to arbitration in a franchise dispute?
Only if you have agreed to arbitration with your counterparty, usually via an arbitration clause in the franchise agreement. Without such a clause, the ordinary courts have jurisdiction.

Does the arbitration clause lapse if the franchise agreement is void?
Not automatically. Due to separability (Article 1053 of the Dutch Code of Civil Procedure), the arbitration clause in principle remains valid independently, even if the main agreement is annulled.

What does the Franchise Act regulate regarding goodwill and competition?
The Franchise Act (Article 7:920 of the Dutch Civil Code) requires parties to make agreements regarding goodwill compensation and limits a post-contractual non-compete clause to a maximum of one year and the territory in which the franchisee operated.

Do you assist both franchisors and franchisees?
Yes. We support both parties, from an international group to the independent entrepreneur with a single location, with mixed teams of lawyers and in-house counsel.