We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
20 December 2005
The question of whether a franchisee is entitled to claim compensation from the franchisor after the franchise agreement terminates is of increasing practical significance in Germany. Under Section 89b of the Commercial Code, a commercial agent is entitled to claim compensation from the principal once the commercial agency agreement terminates. The claim accrues to the commercial agent if he or she has built up an established clientele during the term of the agreement, which the principal can continue to use. The object of the claim is to compensate the commercial agent for the benefits which the principal will continue to gain without having to pay commission to the agent. The compensation claim can be as high as the average annual remuneration obtained by the commercial agent over the last five years.
The question of whether a franchisee has a corresponding compensation claim
against the franchisor after termination of the franchise agreement has not
yet been decided by the Federal Court of Justice. However, this claim has been
affirmed by a number of regional and higher regional courts. Consequently, the
prerequisites and scope of the compensation claim upon termination of contract
are also of relevance in the franchising sector. In this context, a March 23
2005 decision of the Regional Court of Frankfurt am Main (Case 39 O 3/05) is
significant. The court held that a compensation claim does not arise if the
commercial agent or franchisee was insolvent prior to or at the time of termination
of the agreement.
The case concerned an agreement between a manufacturer and a dealer. The dealer had already filed an insolvency petition before the dealership contract terminated. The insolvency proceedings were opened on the day on which the contract terminated. The Regional Court of Frankfurt am Main took the view that it was foreseeable on the date of termination that the dealer would make no further profits with his established clientele even if the contractual relationship were continued. It therefore held that the insolvency, and not the discontinuation of business operations as a result of termination of the contract, had been the cause of the dealer's losses, which are normally balanced by the compensation claim. The court therefore refused to recognize a compensation claim for the dealer.
The Regional Court of Frankfurt am Main developed the case law of the higher courts in a logical manner in its decision of March 23 2005 and arrived at an appropriate result. A franchisee who becomes insolvent through activities performed at his or her own risk does not incur losses due to termination of contract which should be balanced by a compensation claim. An independent franchisee will already have failed in his or her business activities upon filing an insolvency petition or when insolvency proceedings commence; it would therefore be inequitable to grant him or her further claims against the franchisor, as had the contract continued, no further benefits would have arisen for the franchisee. Consequently, if compensation claims are raised by a franchisee against the franchisor, it will be necessary to examine in detail whether the franchisee's business operations had failed at the time the contract terminated.
For further information on this topic please contact Karsten Metzlaff or Karl Rauser at Nörr Stiefenhofer Lutz by telephone (+49 30 20 94 20 00) or by fax (+49 30 20 94 20 94) or by email (firstname.lastname@example.org or email@example.com).
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.