Franchise disputes are often emotionally charged, financially impactful, and legally complex. For the franchisor, their network is at stake; for the franchisee, their investment and livelihood. In our practice, we advise both sides. Since the Dutch Franchise Act of 2021, mandatory rules regarding disclosure and goodwill have emerged. Clumsy termination leads to heavy claims; good preparation prevents most of them.
What is the legal problem?
Franchise disputes revolve around disclosure requirements, royalties, quality control, exclusivity, termination, and goodwill. Rules vary widely internationally: the Netherlands, the US, and France have strict disclosure requirements, China has a registration requirement, and some countries have specific termination rules. Clumsy termination leads to costly proceedings. Reputational damage within the network reflects on other franchisees.
What does the law say?
The Dutch Franchise Act (Articles 7:911-7:922 of the Civil Code, since January 1, 2021) requires prior information (Article 7:913 of the Civil Code), rights of consent for franchisees (Article 7:921 of the Civil Code), and a goodwill arrangement (Article 7:920 of the Civil Code). EU competition law under Regulation 2022/720 governs vertical aspects. US Federal Trade Commission Rule, French Loi Doubin (Article L330-3 Code de commerce), and Chinese registration obligations impose disclosure requirements.
Under Brussels I-bis, the court of the franchisee's place of establishment has jurisdiction pursuant to Article 7(1).
What risks do companies face?
Non-compliance with disclosure obligations leads to voidability under Article 7:917 of the Dutch Civil Code. Overly broad non-compete clauses are moderated. Awkward royalty structures affect Article 101 TFEU. Upon termination, claims for investments and goodwill threaten, especially in countries with strong franchisee protection. Loss of trademark rights in jurisdictions without timely registration undermines the franchise concept.
Practical example from our practice
We represented a Dutch retailer terminating a French master franchise due to performance issues. The French party invoked incomplete disclosure under the Loi Doubin and demanded annulment plus damages of 1.2 million euros. For subsequent international franchises, we incorporated: a complete pre-contract disclosure document (DIP under Section 7:913 of the Dutch Civil Code), structured performance reviews, and a rolling escalation protocol. The subsequent termination resulted in a settlement of only 280,000 euros instead of the estimated scenario of 1.8 million euros.
What can you do?
Follow country-specific disclosure requirements closely (Section 7:913 of the Dutch Civil Code in the Netherlands). Document performance issues via performance indicators. Conduct mediation before proceedings. Apply reasonable notice periods with transitional arrangements. Incorporate exit mechanisms (inventory, customers, IP). Assess goodwill claims under Section 7:920 of the Dutch Civil Code per country. For masters: incorporate cascading protection. See also our article on cross-border franchise contracts.