Introduction and background
The Distribution, Franchise and Agency Association (Vereniging DFA), among others during meetings organised by the Ministry of Economic Affairs, through the (published) responses to the concept Dutch Franchise Code (concept NFC – ´Nederlandse Franchise Code´) and also in the media, has observed how the branch is struggling with the consultation draft of the concept. They have found that there is insufficient support for this code among the franchisors, whereas this is necessary for its successful implementation. In addition, the DFA believes that the present consultation version of the concept is too comprehensive, not balanced and practicable enough, and infringes too much on the contractual freedom of parties.
That is why the Vereniging DFA, which has as one of its statutory aims to promote the legal practice in the field of, among others, franchising in a national and international context, has asked a broadly based delegation of its members to develop an alternative franchise code of conduct which will meet these objections.
The concept NFC
On the initiative of the Dutch Ministry of Economic Affairs, the concept NFC has been released for consultation since June 16 last. It is intended to put an end to excesses and fraudulent practices in the franchise sector. However, it misses the mark completely. The concept NFC is a detailed document with an extensive introduction, but replete with broad and open-ended norms that can (and will) lead to discussion. In the concept, the protection of franchisees goes beyond that of distributors, licensees and commercial agents.
The code argues that extending a franchise agreement cannot be refused “on unreasonable grounds”. With this, the contractual freedom is being jeopardised and, in addition, it is incompatible with the spirit developed in court rulings that long-term contracts can in principle always be terminated. What else then is “an unreasonable ground”? The concept NFC restricts franchisors in their right to decide autonomously on ´major issues´ concerning the franchise formula. This is a far-reaching restriction of the autonomy of franchisors and also undesirable from a commercial point of view. After all, it may thus give rise to a deadlock, a formula cannot be adapted or modernised and the competitive position can be made more difficult. The concept NFC also stipulates that the consumer data collected by the franchisor should be made available to the franchisee. This ignores the substantial investments franchisors often make in loyalty – and consumer programmes, and the fact that approaching consumers by both franchisors as well as franchisees could well lead to confusing situations, not to mention the risk that the formula standard can suffer from this. From these examples, it becomes clear that the balance between the mutual interests has not been found. The concept is ambiguous. On the one hand, it wants to regulate how two professional parties should relate to each other professionally – e.g. by consultation on major changes to the franchise formula – and on the other hand it wants to protect franchisees by saddling franchisors with a far-reaching duty of care. With this approach, it is debatable whether the branch will be able to move on. It is odd that, in the intended round of consultations, foreign franchise formulas operating in the Netherlands do not play any role, given the fact that the concept NFC has only been drawn up in Dutch and the Ministry does not appear to find it necessary to involve foreign franchise formulas in the discussions. In addition, many question marks still remain on the legal status and enforceability of the concept NFC
In the past months, it has become apparent that there is no support among the franchise formulas for the present concept NFC. On November 20 last, the DFA presented the DFA Franchise Code of Conduct to the franchise community in the Netherlands. The complete version can be consulted at: http://www.vereniging-dfa.nl/dfa-gedragscode-franchise/.
In drafting this “alternative franchise code of conduct”, the DFA has tried to make the code simple, balanced and practically viable, applicable to all forms of franchise and not to turn it into a mandatory straightjacket infringing too much on the contractual freedom of parties, but showing parties, franchisee and franchisor, how they should behave toward one another.
The DFA hopes that the franchise branch will be able to benefit from the DFA Franchise Code of Conduct, and that it will help the branch to move on. It will be interesting to see if the branch will adopt the code to extricate itself from the complex discussion being conducted at present about a (new) franchise code of conduct. It is only natural that we will continue to keep you informed.
Tessa de Mönnink, IDI franchising country expert for the Netherlands