The activities of the Drafting Committee have initially led to the presentation on 16 June 2015 of a consultation version of the Dutch Franchise Code, after which stakeholders were given a period of (only) six weeks to submit their input to this code. This procedure has led to a great deal of criticism on the part of franchisors, who felt they were not heard and who had given no mandate for the far-reaching obligations contained in the particular code. Other parties too, such as branch associations and similar organisations, objected to the code.
On 3 September 2015, a debate was organised by the Ministry of Economic Affairs for guests from the branch, during which approximately 30 (large) franchise formulas made known to the Minister their grave concerns regarding the process surrounding the franchise code and its content. The Minister then decided work on the code should be continued, with greater support from the Ministry. This has led to the present version of the Dutch Franchise Code (the Code), presented to the Minister by the Drafting Committee on 17 February 2016.
It says in the Code that the writing process involved “representatives from franchisors and franchisees”. That they in fact comprised a very limited group remains unreported. In addition, the opportunities for franchisors to have had their say in the matter could be called very limited.
In addition, the Code speaks of “widely supported opinions”. From this too, it cannot be concluded that the Code had been drawn up by a Drafting Committee which had not been given any mandate for this on the part of franchisors and in addition consisted of members participating in a personal capacity. As a result, to speak of “widely supported opinions” is a misnomer.
Dispute resolution authority?
The Code contains several references to an authority for the resolution of disputes without anything of the sort being known at present. In addition, it has never been made clear or become clear why the Dutch civil court as such would not suffice in franchise disputes.
Contents Code: far-reaching protection of the position of franchisees
The Code at several – rather important – counts deviates from the case law as it exists in the Netherlands. This is to the advantage of franchisees, for instance when predictions are not being realised, but also with regard to a franchisor´s possibilities of terminating a franchise agreement and through the introduction of “goodwill” on termination.
The Code interferes with internal commercial and financial matters within formulas, among others by prohibiting activities that use the same trademark or competing activities using another trademark and the requisition of approval for aspects having a material effect. It is, however, questionable whether these restrictions are allowed from a competition law point of view.
In addition, the Code gives franchise connections a “separate position” vis-à-vis other relationships by not allowing in principle any deviation from book 3 and book 6 of the Dutch Civil Code, this in combination with a rather forceful “implement or explain” principle.
In all, the Code provides franchisees a (much) greater level of protection than enjoyed in the Netherlands by end consumers and employees, and in addition a much greater protection than enjoyed by bodies or persons similar to franchisees, such as distributors, commercial agents and franchisees. It is questionable whether there is any justification for this.
Meanwhile, the Code refers to an as yet unknown dispute resolution procedure, an unknown dispute resolution authority, and there is uncertainty about the operation and applicability of the Code, since it has after all been drawn up by involving a limited number of persons and it is not clear if a (broad) degree of support if any exists for the Code.
Involvement (foreign) formulas?
What is quite remarkable is the fact that during the entire process the Ministry of Economic Affairs and its Drafting Committee show such little concern for drawing the actual stakeholders, the franchise formulas, into the active process. There is, for instance, no English translation of the Code – as none existed of the previous consultation version – so that foreign formulas cannot adequately inform themselves about its contents. In addition, it often turns out that a sizeable number of the formulas operating in the Netherlands are hardly or not at all informed about the developments concerning the Code, which, once implemented, can have a great impact on the operation of formulas, particularly in relation to their franchisees.
Tessa de Mönnink, IDI franchising country expert for Netherlands