Renewal clauses are common in commercial contracts, particularly in the case of franchise agreements. The Supreme Court recently upheld the validity of a clause which had the effect of allowing a franchisee to renew a franchise agreement perpetually. In its landmark judgment, the court affirmed the lower courts' determination that a renewal clause which does not limit the number of times that a contract of affiliation may be renewed is legal pursuant to Quebec civil law.
Until recently, there was significant doubt as to the validity of fees payable by professional franchisees on the basis of professional revenue. However, two decisions in Quebec have established certain conditions for such fee payments to be considered valid, in particular that the fees are related to the fair market value of the goods or services provided to the professional.
A recent Quebec Court of Appeal decision reversed a Quebec Superior Court ruling which had granted authorisation of a proposed class action by consumers against a franchisor for alleged misrepresentations made by its franchisee with respect to the purchase of an extended warranty for consumer goods. The case illustrates the difficulties often faced by franchisors in relation to class action proceedings brought by consumers at the authorisation stage.
A recent Ontario Superior Court of Justice decision has created an unprecedented expansion of a franchisor's disclosure obligations, significantly affecting franchisors' disclosure practices when entering into franchise agreements before the franchise location is determined. This case is troubling for franchisors, for which it has been common practice to enter into franchise agreements before selecting a specific location for the franchise.
The Quebec Court of Appeal has recently addressed whether a franchise agreement may include a clause that would have the effect of renewing the agreement perpetually. This decision is a reminder of the importance of clear renewal conditions and processes in place in the context of franchise, affiliate and banner association agreements.
As part of a drive to encourage the use of alternative dispute resolution in consumer disputes, the European Commission has developed a new online dispute resolution platform, which has been available for use since February 15 2016. The launch of the platform means that any consumer-facing franchise concept in which the franchisor or its franchisees transact with consumers online must now comply with the new regime.
Increasingly, when a franchise business is asked to identify its most valuable asset, it points to its customer data. However, handling customer data is likely to trigger the application of data protection and privacy rules. Franchise businesses which collect and use data from European citizens should be aware that the legal landscape is set to change dramatically with the implementation of the EU General Data Protection Regulation.
One of the key components of any franchise agreement is the transmission of know-how by the franchisor to the franchisee. Absent this, the agreement may be held null and void or requalified as a mere distribution agreement. In a recent decision, the Supreme Court held that the absence of any pilot outlet run by the franchisor does not amount to a lack of know-know transmission.
Under French civil law, a party to a contract has a duty of loyalty to its contracting party in the performance of the contract. The Supreme Court recently applied this duty of loyalty to a franchisor which had concluded a framework contract with a master franchisee. The court held that the franchisor did not cooperate with, assist or advise the master franchisee loyally. The court also held that it had terminated the framework contract in an unfair manner.
Franchise agreements often contain pre-emption rights allowing franchisors to take over the shares or assets of their franchisees with priority over third parties. The rationale behind these rights is to guarantee the continuity and consistency of the network that the franchisor has gradually built and avoid the leakage of know-how to competitors. Two recent court cases have shed some light on the validity of pre-emption rights and their enforcement with regard to franchisees and their shareholders.
Franchising agreements are often part of a wider relationship between a franchisee and its franchisor. Some franchising networks include a business lease granted by the franchisor or one of its affiliates. While the combination of a franchising agreement and a business lease may seem odd, there are several circumstances under which a business lease may be entered into alongside a franchising agreement.
After a heated debate, the National Assembly has finally adopted the bill relating to new freedoms and protections for undertakings and employees. Although the far-reaching amendment requiring franchise networks to establish social dialogue committees has been softened, most franchise networks will likely still be concerned that the new provision could negate the legal independence of franchisees and their authority over employees.
The Federal Court of Justice recently ruled that an authorised dealer, such as a franchisee, has no compensation claim in analogous application of the regulation governing sales representatives contained in the Commercial Code if the franchisor is contractually obliged to block the customer data provided to it by the franchisee, to discontinue using it and to delete it at the request of the sales intermediary when the contract is terminated.
The Federal Court of Justice recently criticised a franchising advertising flyer in terms of competition law. One interpretation of this judgment is that it makes the advertising of franchise systems significantly more difficult. However, this point of view does not ultimately do justice to the decision, as the judgment does not fundamentally question the typical advertising of franchise systems.
A Brandenburg Higher Regional Court decision regarding the payment of franchise and marketing fees in arrears shows the importance of a substantiated presentation of a claim, as well as the importance of accurate, transparent and comprehensible billing by franchisors. The court could not ascertain whether there were unpaid franchise or marketing fees, as the franchisor failed to present sufficient facts demonstrating the exact amount of the franchise and marketing fees in the respective timeframes.
The Federal Supreme Court recently ruled that a franchisor's supplement containing prices stipulated as being "non-binding recommendations" obtainable only "in participating markets" constituted an act of unfair competition as the disclaimer was insufficient. The judgment raises questions about disclaimers, franchisor advertising obligations and whether franchisors are prohibited from enlisting franchisees to participate in a promotion.
Sometimes a franchisee can no longer pay some or all of the price of goods purchased from the franchisor, the rent for the premises or the franchise fees. Deferrals or instalment agreements may be among the solutions. But what happens if the concessions of the franchisor or the efforts of the parties are inadequate and the franchisee falls into insolvency?
Executed in the right way, a business's international franchising strategy can become a core asset, helping to secure the long-term future of the business as a global brand and hedging the impact of economic risks in the domestic market. However, such ventures must be carefully structured to reflect the needs of the business, the target market and the franchise partner.