On 12 December 2018, the Rutte III government presented a Bill for a franchising Act to the industry for the purposes of consultation. So far, there was no specific franchising act in the Netherlands. However, these last years the development of rules on franchising has been worked on. This has occupied many minds in the world of franchise in the recent years.
In 2016, the drafting of self-regulatory rules of conduct in the field of franchising has been done to promote equality of franchisor and franchisee. These rules of conduct have been developed by a writing committee with representatives on behalf of franchisors and franchisees. This resulted into the Dutch Franchising Code (NFC), a code that has certainly not come about without a struggle.
In April 2017, a preliminary draft of an Act aiming at anchoring the NFC was brought up for consultation but did not result into formal legislation. Franchisors and franchisees disagreed too much on the content of the NFC.
The Explanatory Memorandum to the recent new Bill says that the NFC has actually been written out of it, seeing that the industry did not succeed in implementing it voluntarily.
The Franchising Bill
- Precontractual exchange of information.
- Interim change of an effective franchise agreement.
- Termination of franchise cooperation.
- Consultation between franchisor and his franchisees.
Some Critical Notes
- The purport of the Explanatory Memorandum to the Bill is rather pessimistic on franchise and the malpractices that allegedly exist, whereas this is not substantiated by objective investigation. On the contrary, it appears upon close reading of the Explanatory Memorandum that actually no structural malpractices have been identified;
- The Bill is not well-balanced and not consistent. On the one hand, franchisees will get control (as well) of the formula and policy of franchisors, whereat the responsibility of the success of the franchisee and the financial risks are imposed for the largest part on the franchisor, on the other hand.
- In the Bill leading case law (inter alia of the Supreme Court) is derogated from without stating reasons, such as in respect of prognoses and goodwill;
- A lot of open standards and general phrasing is used which are not clear. This may lead to interpretation problems and disputes and involves a high degree of legal uncertainty;
- The Bill restricts franchise formulas in their innovation and business opportunities. This is bad for effectiveness and development of franchise formulas, and consequently bad for both franchisors and franchisees, who all depend on the success of the formula;
- The entire Bill is mandatory law, while it imposes stricter rules. The parties are not allowed to reach any different understandings. This is not only undesirable but also unnecessary;
- By implementing this Act a – much – stricter system will apply in the Netherlands than in the surrounding countries. This may have a negative impact on the arrival of international formulas and the growth of franchising in the Netherlands.
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