Franchise consultation and franchise council

Consultation and decision-making within the franchise system

A franchise formula functions best when the franchisor and franchisees are in dialogue regarding the direction, changes, and operations. Since January 1, 2021, the Franchise Act has not only encouraged this consultation but has made it partially mandatory, and has granted franchisees a right of consent regarding significant changes. Well-structured consultation prevents conflicts and strengthens the formula; poorly structured consultation is a source of disputes regarding the validity of changes.

Who do we work for?

We assist both franchisors and franchisees. On the franchisor side, we advise on a careful and legally sound consultation process, on when consent is required, and on the design of the consultation structure. On the franchisee side, we advise individual entrepreneurs, franchise councils, and associations on their rights, on the exercise of the right of consent, and on the organization of collective consultation.

The annual meeting

Article 7:916, paragraph 3 of the Dutch Civil Code obliges the franchisor to consult with its franchisees at least once a year. This consultation concerns, among other things, the execution of the franchise agreement, proposed changes, and the general course of business within the franchise system. The consultation is more than a formality: a carefully conducted consultation is a determining factor in whether a change or decision will later hold up legally. We advise on the structure, agenda, and reporting of this consultation.

The right of consent

Article 7:921 of the Dutch Civil Code grants franchisees a right of consent. Prior consent is required for amending the franchise agreement, for changes to the formula, and for introducing a derivative formula through which the franchisor offers goods or services itself or through third parties, when the amendment exceeds a threshold amount agreed upon by the parties. If no threshold amount has been agreed upon, consent is required when the amendment entails a required investment or has a financial consequence that cannot reasonably be demanded of the franchisee without consent. The precise wording of the right of consent is often a subject of debate.

Threshold amounts

The Franchise Act is based on a threshold amount agreed upon by the parties, above which consent is required. Agreeing on a workable and reasonable threshold amount is in the interest of both parties: the franchisor gains clarity regarding when they can act freely, and the franchisee retains control in the event of significant changes. If a threshold amount is missing, disputes quickly arise regarding whether a change required consent. We advise on establishing and documenting an appropriate threshold amount.

The franchise council

A franchise council is a representative body of franchisees that conducts collective consultation with the franchisor. While the Franchise Council is not mandatory under the Franchise Act, it is voluntarily established in many franchise systems because this ensures structured and efficient consultation. For the validity of the collective consultation and the exercise of the right of consent, it is important that the franchise council has a clear mandate, that decision-making proceeds fairly, and that it is clear on whose behalf the council speaks. We advise on the structure, regulations, and mandate of the franchise council.

Our working method

We first assess the franchise agreement, any consultation structure, and the manner in which the right of consent is structured. Subsequently, depending on your position, we advise on the design of a sustainable consultation process, the exercise or assessment of the right of consent, or the establishment and mandate of a franchise council. In the event of disputes regarding the validity of an amendment, we base our position on the course of the consultation and the statutory rules regarding consent.

Part of Franchise Legal Advice

Consultation and the franchise council are part of the broader Franchise Legal Advice provided by MKB Juristen. Our mixed teams of lawyers and in-house counsel advise both international franchise groups and independent franchisees, from national chains to the baker on the corner. Whether it concerns the franchise agreement, pre-contractual information, the derivative formula, or a dispute regarding the validity of an amendment: we always place the issue of consultation and consent within the context of the entire formula.

The derivative formula and competition by the franchisor

A common point of contention regarding consultation and consent concerns the derivative formula. This arises when the franchisor, either directly or through third parties, offers goods or services under a formula other than the franchise formula, provided that this derivative formula competes with the franchise formula. Article 7:921 of the Dutch Civil Code explicitly links the right of consent to the introduction of such a derivative formula when this exceeds the agreed threshold or, failing that, has financial consequences that cannot reasonably be required without the franchisee's consent. Additionally, pursuant to Article 7:916 of the Dutch Civil Code, the franchisor must inform the franchisee in advance regarding the extent to which and the manner in which the franchisor may compete with the franchisee, whether or not via a derivative formula. We assess whether a proposed webshop, own-brand establishment, or ancillary formula requires consent and advise on the negotiations regarding this.

Right to information, right to advice and right of consent

Consultation within a franchise system rests on three interconnected rights of the franchisee. The right to information entails that the franchisor informs the franchisee in a timely and complete manner about proposed changes, required investments, and the state of affairs within the system; this right is essentially anchored in Article 7:916 of the Dutch Civil Code. The right to advice concerns the ability of franchisees or the franchise council to advise on proposed decisions before they are taken; this right is often formalized in the franchise agreement or the regulations of the franchise council. The right of consent under Article 7:921 of the Dutch Civil Code is the most significant right: prior approval is required for changes subject to the consent requirement. We advise on the demarcation between these three rights, so that it is clear when informing suffices, when advice must be sought, and when consent is mandatory.

Franchise council or franchise association?

For collective consultation and the exercise of the right of consent, franchisees can choose between a franchise council and a franchise association. A franchise council is typically an informal consultative body without its own legal personality; the members represent the franchisees, but the council must derive its mandate for each subject from its constituency. A franchise association is a legal entity with articles of association in which the mandate and the binding effect of decisions are regulated in advance; this provides a single clear point of contact and clear mandate rules. For the valid exercise of the right of consent, it is crucial that it is clear on whose behalf consent is being given and whether the majority of franchisees established in the Netherlands, or each affected franchisee individually, must consent. We advise franchisees on the choice between these two forms and on the structure of the articles of association or regulations.