In that case, an amendment to the franchise agreement and/or the manual is often necessary. In principle, a minor unilateral formula amendment by the franchisor is admissible. Besides, these amendments will not cause problems because as a rule they do not cost the franchisee money, and they favour the formula. But, in court rulings minor amendments are – sometimes very – narrowly interpreted. Problems do arise in cases of more substantial formula changes. If, in the franchise agreement, no revision clause has been included, all franchisees need to agree to an amendment. (Recent) court rulings teach us that past approvals hold no guarantees for the future.
In 2014, the Amsterdam Court of Appeals (NJF 2014/289, Spare Rib Express) ruled on the question whether or not an opposing franchisee was bound to a complementary marketing compensation approved by the majority of the franchisees. The franchise agreement did not include a revision clause. However, for three years in a row this particular franchisee (and all the other franchisees) had already been paying a similar compensation after its approval in the annual meeting of franchisees. The franchisor (a.o.) argued that reasonableness and fairness led to the franchisee being obliged to the continuation of the payment. In addition, the franchisor claimed that the marketing costs in 1997 – the year of the franchise agreement – were different from those in 2012 and, consequently, that it was in the interest of the franchise chain for the franchisee to be bound to the majority decision. This latter argument failed because the franchisor had insufficiently substantiated that the agreed marketing compensation was insufficient. However, the first argument also failed and the court ruled that the franchisee no longer needed to pay the complementary compensation. The result of this ruling could well be that the franchisor will decide to stop the additional marketing activities in the future. In such a situation, the franchisor is not the only ´loser´ of the case. After all, the other franchisees too, who did indeed agree to the amendment proposal, will regret this.
So, if your franchise agreement does not contain a revision clause, but amendments are approved by the majority of the franchisees, it is important to obtain the approval of all franchisees. In addition, once the approval has been obtained, it is important that the amendments will be clearly documented in writing. We advise to pay attention to the scope/duration of the amendment(s) and indicate whether it is an amendment or an addition to the franchise agreement. As indicated above, this is not only in the interest of the franchisor but often also in the interest of the franchisee.
If a revision clause has been included in the franchise agreement, it is important to follow it closely. If it is not respected, it may then be possible to get into a situation similar to the above.
Tessa de Mönnink, IDI franchising country expert for Netherlands