After a self-regulatory process which led to the Dutch Franchise Code in 2016 and a previous draft franchise act which was rejected, the Dutch Franchise Act (“Wet franchise”) has been adopted by the Dutch Parliament and lastly by the Dutch Senate on 30 June, 2020.
The new Act is expected to enter into force on 1 January 2021. From this date onwards, new franchise agreements concluded with franchisees operating in the Netherlands must comply with the mandatory provisions of the Dutch Franchise Act. Existing franchise agreements are subject to a transitional period of two years with regard to specific provisions such as the right of consent, non-competition and goodwill. As of 1 January 2023, all franchise agreements must fully comply with the Dutch Franchise Act. Due to these short timelines, franchisors will have to align their franchise agreements with Dutch franchisees in a relatively short period of time.
The aim of the Dutch Franchise Act is to provide more balance in the relationship between the franchisor and the franchisee by offering the franchisee with a statutory protection. The parties should behave towards each other as a ‘good franchisor’ and a ‘good franchisee’. The question has been raised whether this principle adds something, as parties are already to behave towards each other in accordance with the civil law principle of reasonableness and fairness. However what is of course new is the mandatory protection offered to franchisees under this new Act.
1. Summary of key topics
Some of the key topics of the Dutch Franchise Act are (summarized):
- Pre-contractual disclosure obligations
The franchisor has far-reaching disclosure obligations in the pre-contractual phase. This includes any information that is or could reasonably be relevant for the conclusion of a franchise agreement. This information should enable the franchisee to make a well-considered decision on conclusion of a franchise agreement.
- Disclosure obligations during the term of the franchise agreement
During the term of the franchise agreement, the franchisor needs to regularly provide information on topics such as required investments, amendments to the franchise agreement, franchisor’s use of the so-called derived formulas and any other information deemed relevant.
- Standstill period
The abovementioned information has to be provided to the franchisee at least 4 weeks prior to the conclusion of the franchise agreement.
- Right of consent
If the franchisor intends to alter the franchise formula using a provision contained in the franchise agreement or intends to have a derived formula operated directly or through third parties without amending the franchise agreement, and the franchisor requires from the franchisee an investment, fee, surcharge or other financial contribution or can reasonably foresee that the implementation will lead to costs or loss of turnover the following applies. If such an investment, financial contribution etc. exceeds a level set out in the franchise agreement, the franchisor requires prior consent for implementation of the plan concerned from a majority of the franchisees established in the Netherlands with whom the franchisor has concluded a franchise agreement concerning the franchise formula or each of the franchisees established in the Netherlands that are affected by the intention of the plan.
- Assistance and support
The franchisor must provide continued assistance and commercial and technical support that may be reasonably expected by the franchisee, bearing in mind the nature and scope of the franchise formula.
- Goodwill and non-competition
The franchise agreement should include a provision relating to accrued goodwill in the franchisee’s enterprise. It should be clear on how the value of goodwill is determined and how it is remunerated. The non-compete obligation must not exceed one year after the end of the franchise relationship and must be limited to the geographic area in which the franchisee has operated.
2. Mandatory nature for franchisees operating in the Netherlands
Franchisors cannot derogate from the Dutch Franchise Act in a franchise agreement, even if foreign law has been agreed upon in as far as franchisees are operating in the Netherlands. Such clauses will be invalid and cannot be invoked. For franchise agreements with franchisees operating outside of the Netherlands, it is possible to deviate from the Dutch Franchise Act, even when the agreement is governed by Dutch laws. Such deviation should be made explicit.
3. Next steps
The new Franchise Act will have far-reaching effects on franchise practices and requires franchise organizations to proceed proactively. After all, the Franchise Act will have a heavy impact on business conduct and will entail necessary preparations, including taking stock of existing collaborations and implementation of the required changes.
You can find relevant, former articles with additional information on this legislative process in the Netherlands on the IDI website at:
https://www.idiproject.com/news/netherlands-upcoming-new-rules-franchising https://www.idiproject.com/news/netherlands-new-proposed-dutch-franchise-bill-grants-franchisees-far-reaching-veto-rights-and, https://www.idiproject.com/news/netherlands-draft-franchise-law, https://www.idiproject.com/news/netherlands-update-about-dutch-franchise-code and https://www.idiproject.com/news/netherlands-dutch-franchise-code-turns-franchise-odd-one-out
Tessa de Mönnink, IDI Country Expert for franchising in Netherlands