Conflict resolution and collective advocacy

Conflicts within a franchise system

A franchise formula is a collaboration between unequal parties with partly parallel and partly opposing interests. The franchisor wants uniformity, economies of scale, and control over the formula; the franchisee wants a healthy local business and a reasonable return on investment. When these interests clash, conflicts arise regarding fees and purchasing conditions, changes to the formula, online sales channels competing with the store, territory exclusivity, or the interpretation of the agreement. Such conflicts often affect more than one franchisee at a time.

Who do we work for?

We assist both franchisors and franchisees. On the franchisee side, we act for individual entrepreneurs, for groups of franchisees uniting, and for franchise councils and representative associations safeguarding collective interests. On the franchisor side, we advise on a careful consultation process, on managing collective disputes, and on preventing escalation. Our role varies depending on the position, but the goal is always a workable and legally sound outcome.

Individual or collective?

A franchise dispute can be individual, when a franchisee has a conflict regarding their own agreement, or collective, when a change or decision by the franchisor affects all or many franchisees simultaneously. Collective disputes often arise around a change to the formula, an adjustment to the fee model, the introduction of an online channel, or a major change of direction. The Franchise Act has strengthened the position of franchisees regarding these types of decisions, particularly through the right of consultation and consent.

The right of consultation and consent

The Franchise Act obliges the franchisor to consult with the franchisees at least once a year (Article 7:919 of the Dutch Civil Code). In addition, a consent requirement applies pursuant to Article 7:921 of the Dutch Civil Code: for certain amendments to the franchise agreement or the formula, or for the introduction of a derivative formula, the prior consent of the franchisees is required when the amendment exceeds a threshold amount agreed upon by the parties, or, in the absence of a threshold, when the amendment has a certain financial impact. This right of consent is a powerful instrument for collective advocacy.

Collective advocacy

Franchisees often organize their collective interests through a franchise council or an association of franchisees. Such a collective can conduct consultations on behalf of the affiliated franchisees, seek legal advice, negotiate amendments, and, where necessary, litigate jointly. Acting collectively strengthens the negotiating position and distributes the costs and risks of a dispute. We advise on the structuring of a collective, on mandating and decision-making, and on the legal avenues available to a collective.

Dispute resolution routes

A franchise dispute can be resolved through various channels. Negotiation and consultation, possibly within the statutory annual consultation, are usually the starting point. Mediation can be effective when the collaboration must continue. Summary proceedings offer a solution in acute situations, such as an impending unilateral amendment or an online channel being rolled out immediately. Full proceedings are appropriate for disputes of principle regarding the interpretation of the agreement or the validity of an amendment. Some franchise systems have their own dispute resolution committee or arbitration body.

Our working method

We first assess the agreement, the formula documentation, the course of the consultations, and the nature of the dispute. Subsequently, we determine whether the most effective route lies in consultation, mediation, summary proceedings, or main proceedings, and whether an individual or collective approach is most likely to succeed. In collective cases, we pay close attention to internal decision-making and delegation of authority, ensuring that the collective can act decisively and with legal integrity.

Association or franchise council: choose the right form

Collective advocacy stands or falls with the legal form in which franchisees organize themselves. An association of franchisees is a legal entity with articles of association; the articles determine which decisions the association may take on behalf of its members and what majority is required for this. A franchise council, on the other hand, is typically an informal consultative body without legal personality that represents the franchisees but does not automatically bind them legally. This difference is decisive for a franchisor wishing to implement changes, and for franchisees wishing to defend themselves. We advise on the choice between an association and a franchise council, on the articles of association versus the franchise council regulations, and on which consultative body suits your franchise formula. You can read more about this on our page regarding franchise consultation and franchise council.

Mandate and decision-making: the most common mistake

The biggest pitfall in collective action is an inadequate mandate. The board of a franchise association cannot simply consent to an amendment or enter into a settlement on behalf of the members: as a rule, this requires an explicit statutory basis and a resolution of the general meeting, sometimes with a qualified majority. If the general meeting has determined that certain matters may only be decided by a two-thirds majority, the board is bound by this. Consent taken without authority may be void or voidable, with significant financial consequences. For the franchisor, this means that consent obtained is only valid if it was established in the proper manner. We review the internal decision-making process, the articles of association, and the granted mandate, ensuring that a collective acts decisively and that the franchisor has certainty regarding the validity of an agreement.

The right of consent in practice (Article 7:921 of the Dutch Civil Code)

Article 7:921 of the Dutch Civil Code grants franchisees a right of consent for amendments to the franchise agreement or the formula, and for the introduction of a derivative formula, insofar as these exceed a threshold amount agreed upon by the parties or, failing that, have financial consequences of a certain magnitude for the franchisee. Consent can be obtained from each individual franchisee affected by the amendment, or from a simple majority of all franchisees. It is precisely this majority route that makes the right of consent a collective instrument: a well-organized collective can negotiate on behalf of the group regarding conditions, compensation, or phasing. We assess whether a threshold amount has been agreed upon, whether the threshold is exceeded, and which consent route is most likely to succeed, and ensure that the consultation and decision-making comply with the requirements of the Franchise Act.

Collective disputes at the end of the cooperation

Not only ongoing formula changes lead to collective disputes; the termination of the partnership does so as well. When a franchisor terminates the formula, restructures a chain, or allows franchisees to switch to a derivative formula, issues such as goodwill and the post-contractual non-compete clause often affect all franchisees simultaneously. Pursuant to Article 7:920 of the Dutch Civil Code, the franchise agreement must regulate how goodwill attributable to the franchisee is compensated, and an agreement excluding any goodwill compensation is void. A post-contractual non-compete clause is only valid if it is in writing, remains limited to competing activities, lasts no longer than one year, and is not broader than the franchisee's territory. In a chain-wide exit scenario, a collective approach can significantly strengthen the negotiating position regarding goodwill and termination terms.

Conflict management within our franchise expertise

Conflict resolution and collective advocacy are part of our broader Franchise Legal Advice. We work in mixed teams of lawyers and in-house counsel and assist both franchisors and franchisees, ranging from an internationally operating chain to the independent entrepreneur with a single location or the baker on the corner. We cover related topics on our pages regarding franchise consultation and the franchise council , and the statutory obligations of the franchisor. Whether you wish to implement a change, establish a collective, or defend yourself against a unilateral decision: we translate the rules of the Franchise Act into a concrete, feasible strategy.