In all likelihood, the new Dutch Franchise Act will apply as of 1 January 2021. National and international franchising businesses have been busy getting ready for the implementation of the relevant requirements into their franchise agreements and into their business operations. If you haven’t already done so, now is the time to get started.
Below, we set out a framework of actions and we also highlight the core elements of the act.
Before doing so we set out the (potential) international applicability of the act. Franchise agreements, both purely domestic as well as international, should be reviewed and, where required, amended for compliance with this new legislation. Furthermore, the Franchise Act may mean that other (legal or operational) documentation will have to be created or amended, e.g. precontractual information documentation.
Applicability - national and international relevance
The act applies, first of all, with regard to franchisees established in the Netherlands. The provisions of the act may not be deviated from if this is to the detriment of such franchisees. Also, franchisees established in the Netherlands can invoke the protection of the act, regardless of the choice of law in the franchise agreement.
Secondly, if no action is taken, franchise agreements subject to Dutch law concluded with franchisees outside of the Netherlands, will come under the act. However, such franchise agreements may deviate from the act. In other words, the regime as laid down in the act can be excluded. Absent an arrangement to the contrary, the act will apply to such Dutch law franchisee agreements by operation of law. If the intention is to deviate from the act, then action will have to be taken.
Core elements of the act
The aim of the Dutch Franchise Act is promoting the relationship and cooperation between franchisors and franchisees. With that in mind, the act stipulates that the franchisor and the franchisee must behave towards each other as a good franchisor and a good franchisee.
Prior to the conclusion of the franchise agreement a duty to share information applies. The prospective franchisee must provide information about his financial position; the prospective franchisor must provide, inter alia, the draft of the franchise agreement, applicable fees, information on consultation between franchisor en franchisee, as well as certain financial information regarding the franchisor.
The act introduces a "cooling off period" of 4 weeks between the moment on which the franchisee receives all required information and the moment of signing the franchise agreement. Exceptions to this “cooling off period” apply for specific renewal or subsequent agreements.
The act sets conditions for making amendments to the franchise agreement or formula which could have substantial consequences for the franchisee and introduces a right of consent that applies in certain circumstances. This may be made subject to a threshold.
The act furthermore contains a potential right of goodwill for the franchisee on termination of the franchise agreement, and limits non-competition restrictions.
Framework of actions
- Verify applicability of act
Businesses should verify whether their franchise agreements – existing or planned and domestic and international - come under the new act.
For existing franchise agreements, a gap analysis should be made to verify the possible required amendments to the franchise agreements.
- Discuss with all relevant business and operational stakeholders
The required amendments will likely not just be legal in nature but may also have a serious business and operational impact. Experience shows the enormous benefits of getting the relevant business stakeholders on board in the process as soon as possible. This will facilitate the actual change process.
The required amendments will have to be incorporated in the franchise agreement (or contracted out, as the case may be), e.g. via an addendum to the franchise agreement.
- Amendments to be discussed with business partners
The amendments will have to be discussed and, where relevant, agreed with the business partners.
- Contract (change) management
The above steps will require extra efforts when it comes to contract management and contract change management. Make sure to take enough time to get this right.
- Drafting policy documents/protocols
In addition to the franchise agreement, other (legal or operational) documentation could have to be created or amended for, inter alia, the cooling-off period, information requirements, amendments to the franchise formula and consultations with franchisee.
The act will, in all likelihood, come into force on 1 January 2021 and franchise agreements will have to comply from that date. In respect of franchise agreements concluded before 1 January 2021, the statutory provisions on goodwill, non-competition and interim changes to the franchise formula will enter into force on 1 January 2023.