For the last several years, committees assembled by the Netherlands government have been studying franchising issues there. At first, a group of franchisees developed a voluntary code of conduct for franchisors and franchisees. Franchisors, who had not been involved in the process that developed it, largely, and emphatically, rejected that Code. Then, franchisors were invited to participate in the development of a mandatory code of conduct. It, too, was rejected by the franchisor community and withdrawn from consideration.
In late 2018, based upon a year of study, the Secretary of Economic Affairs and Climate Policy published a new proposal and requested comments by January 31, 2019. That study resulted in the regulatory proposal described below.
Never has a study that was designed to further the understanding of franchising and to ameliorate the impact of a bad proposal resulted in suggestions that are far worse. How bad is it? Every franchisee, and every representative group of franchisees (by a vote of 2/3 of the representatives), could refuse to accept and implement operational changes and contractual changes announced by the franchisor. The right of rejection would apply, regardless of whether franchisees had given their franchisors the right to implement changes, and would apply to both existing and future franchise agreements.
How would franchisors adapt their franchise programs to take advantage of competitive opportunities and challenges? How could franchisors deliver duties as trademark licensors to deliver a consistent consumer experience at franchised outlets when standards compliance is optional? How quickly would the value of franchisors' and franchisees' investments in their businesses plummet? Those are only a few of the questions that should be addressed as the proposal is evaluated.
WHAT'S AT STAKE
Unfortunately, the right of rejection is only one of many problems with the proposal. The draft code would also impose a duty on franchisors and franchisees to make ongoing disclosures to each other about all information "that they know or can reasonably suspect to be relevant or become relevant for the other party...[relating] to the performance of the agreement..." Unlike franchise disclosure rules in other countries, which usually require presale disclosure of specified material information by franchisors to franchisees, this is an ongoing, undefined and unlimited obligation.
Consider the types of information that might...