Franchising updates

Canada

Contributed by Lapointe Rosenstein Marchand Melançon LLP
Franchisee or employee in disguise?
  • Canada
  • 18 June 2019

Franchising communities in Quebec and elsewhere in Canada have been eagerly awaiting a Supreme Court of Canada decision on whether an unincorporated franchisee operating a two-person cleaning services business in Quebec as part of a cleaning services franchise network qualified as an employee. While the court's ruling may be worrisome to franchisors in certain industries, there are several mitigating factors to consider.

Limits of good faith and relational nature of franchise agreements in Quebec
  • Canada
  • 26 March 2019

The Supreme Court of Canada recently reiterated the fact that franchise agreements are relational contracts and are therefore subject to a heightened duty of good faith pursuant to Quebec civil law. This decision is in line with a series of recent Quebec civil law decisions that have broadly interpreted, and arguably extended, the duty of good faith owed by a franchisor to its franchisees.

Will a franchisee's rescission claim stay or will it go? Mandatory mediation may result in stay of proceedings
  • Canada
  • 18 December 2018

It has become common practice to include alternative dispute resolution (ADR) provisions in franchise agreements. A recent decision by the Ontario Court of Appeal serves as a stark reminder to franchisors to ensure that ADR provisions contained in a franchise agreement are properly drafted so that the commencement of disputes thereunder triggers the running of the applicable limitation period.

To be an employee or not to be – that is once again the question
  • Canada
  • 13 November 2018

The issue of whether a franchisee is an employee or an independent contractor has been debated on numerous occasions and was once again raised in a recent Quebec Court of Appeal decision. In its decision, the court emphasised that when analysing whether a franchisee qualifies as an employee or an independent contractor, the courts should look beyond the terms of the agreement between the parties. While this decision may worry certain franchisors, there are a number of mitigating factors to consider.

Franchisor caught between rock and hard place: importance of clear exclusivity clauses
  • Canada
  • 21 August 2018

Franchise arrangements often involve a three-way relationship whereby franchisors enter into commercial leases with landlords and then sublease the rented premises to franchisees. Such leases often contain an exclusivity clause limiting the landlord's ability to lease nearby commercial space to competitors of the franchise network. The Superior Court of Quebec recently confirmed that exclusivity clauses must be interpreted and applied restrictively so as not to unduly interfere with the parties' freedom of contract.


European Union

Keeping your trade secrets safe – EU perspective for franchisors
  • European Union
  • 15 October 2019

The EU Trade Secrets Directive seeks to harmonise the protection of trade secrets in all EU member states. In general, the implementation of the directive is positive for franchisors, as the protection of trade secrets and confidential information is key to the success of a franchise system. Although franchisors may be able to rely on the statutory definition of 'trade secret' set out under the directive, they should nonetheless continue to ensure that their confidential information is safeguarded contractually.


France

Contributed by Aramis Law Firm
Franchisor's change of control and its impact on renewing existing franchise contracts
  • France
  • 17 September 2019

The Paris Court of Appeal recently held that a franchisor had not breached its duty of loyalty towards its franchisee in reorganising its business following its change of control. In the context of an internal business reorganisation, franchisors should therefore be careful in statements that they may make to franchisees, including in the pre-contractual disclosure documentation.

Freedom of association and franchising: duty of loyalty in question
  • France
  • 30 April 2019

The concept of loyalty is frequently used as a general (and often fallback) principle by franchisees and franchisors in the litigation context. As a franchise agreement cannot identify every illegal behaviour of the parties, loyalty and good faith are often used as key principles to determine what is allowed. The Court of Cassation recently considered the loyalty principle in a case opposing a franchisor and a franchisee in the computing school sector.

Take care in online presentation of franchised outlets
  • France
  • 13 November 2018

As part of the promotion of their networks, franchisors often edit websites displaying contact details and other relevant information regarding the franchise network's outlets, whether they are owned by them or operated by franchisees. In a recent decision, the Versailles Court of Appeal held that a franchisor had treated a franchisee's stores on its website unfairly compared with its own stores.

Challenge of restitutions following cancellation of franchise agreement
  • France
  • 31 July 2018

Where a court considers that a lack of information (or inaccuracy in this regard) has deceived a franchisee, it may hold the franchise agreement null and void and, in some cases, find the franchisor liable for damages. The challenge for franchise agreements is that restitutions made to franchisees often include entry fees and royalties paid by the franchisee during the agreement, while the services provided by the franchisor may not be restituted as such.

Franchisors' assistance obligation is exclusively technical and commercial, not financial
  • France
  • 10 April 2018

The French courts often address the issue of whether a franchisor has properly fulfilled its assistance obligation. In a recent case, the Paris Court of Appeal held that this obligation is exclusively technical and commercial and constitutes purely a 'best efforts' obligation. This decision has confirmed that franchisors need not provide financial assistance to their franchisees. Instead, the assistance obligation consists only of helping the franchisee to operate the business from a commercial and technical standpoint.


Germany

Contributed by Noerr LLP
Inadmissible imitation of 'presentation of dishes': stronger protection for gastronomic concepts
  • Germany
  • 13 August 2019

Franchisors must typically consider the extent of concept protection if franchisees which have left the franchise system reuse the concept in a largely unchanged fashion or if third-party competitors (outside the franchise system) copy the concept's main features. A recent decision concerning a fast-food restaurant franchise reinforces the IP protection of gastronomic concepts against competitors' inadmissible imitations.

Bogus self-employment and unethical franchise agreements
  • Germany
  • 30 April 2019

Case law from the highest German courts on franchise law matters is rare, which makes a recent Federal Court of Justice decision on the subject of bogus self-employment of franchisees – a perennial issue for franchise law practitioners – even more noteworthy. The case concerned claims for payment under a licence agreement and the question of whether the licence agreement was void due to the franchisee's bogus self-employment.

For want of an asterisk: regional court scrutinises franchisor's TV advertising
  • Germany
  • 15 January 2019

The Munich Regional Court I recently established a new precedent for competition restriction, which is prohibited in franchising systems under the Act against Restraints on Competition. The court found references to "participating restaurants" in a franchisor's TV advertising insufficient and in violation of the price maintenance prohibition. This decision deserves special attention as it relates to advertising with non-binding price recommendations, which is common among franchisors.

Admissibility of lawsuit despite effective mediation clause in franchise agreement
  • Germany
  • 02 October 2018

A recent Hamburg Regional Court decision is generally understood to have solidified the first franchise-related court judgment on bad faith regarding mediation clauses rendered by the Saarbruecken Higher Regional Court in 2015. However, at second glance, the Hamburg judgment provides a different reasoning for bad faith regarding a mediation objection and might therefore serve as a new application of bad faith in future franchise-related court proceedings regarding mediation clauses.

Requirements for interim injunction to enforce obligation to operate business
  • Germany
  • 06 February 2018

The Bochum Regional Court recently looked at whether a franchisee's contractual obligation to operate a business can be enforced by way of an interim injunction. To grant an interim injunction to enforce the obligation to keep the business open, it must be demonstrated that the franchisor faces serious losses at least equivalent to a threat to its survival or to drawbacks that cannot later be remedied.


International

Joint venture franchises: the whys and wherefores
Fieldfisher LLP
  • International
  • 21 August 2018

Franchising provides a flexible model for growth or re-engineering, with a variety of structures to meet different needs. Of all of the structures, the joint venture franchise is the least understood and most likely to cause difficulties if not structured correctly. In order to understand why this is so, it is necessary to consider the rationale for using the joint venture model and the manner in which such a relationship should be structured.