Competition law generally prohibits EU and national competition law from imposing many of the usual restrictions on franchise agreements. However, both EU and national law contain “block exemption rules” for vertical agreements such as franchises. These effectively exempt franchising from the main controls of competition law under certain conditions. Because of the general common law rule that parties negotiating a contract are not required to disclose facts relevant to the other party`s decision to enter into the contract, in common law countries there are restrictions on the freedom of franchisors to disclose all desired information, or by law, as is the case in the United States. and most provinces in Canada and Australia, or because of membership in a national franchise association that imposes disclosure requirements on its members. In general, no specific legislation is required in civil law countries (although a number of civil law systems such as France and Belgium have introduced laws requiring disclosure) because the General Civil Code requires contracts to be negotiated in good faith. Germany is arguably the most zealous advocate of the obligation to negotiate in good faith and thus provide pre-contractual information, but it is not clear what exactly needs to be disclosed in Germany. The starting point is that all circumstances necessary to comply with the principles of good faith of § 242 BGB must be disclosed. Nevertheless, the approach taken in recent court cases3 is to focus on the obligation to provide profitability information, which must be based on extensive market research and requires an assessment of the specific location or territory by the franchisor. Profit forecasts cannot simply be based on an estimate if it is not clearly stated.
The two countries considered, Italy and England, are very different. Italy is a civilian country with a specific franchise law. England, on the other hand, is a common law country with no specific laws regarding franchising. One might expect there to be significant differences in the approach of the two jurisdictions, but in fact, the similarity is striking. While the process for arriving at the answer may be different, the answer is largely the same or at least similar. In common law countries, there is generally no obligation for a party negotiating a contract to disclose information. There are minor exceptions to this general rule. An English court in a case involving the female pop group Spice Girls found that members of the Spice Girls knew that a member intended to leave the group when they entered into an advertising contract requiring the participation of all women in the group. The judge concluded that by allowing all members of the group to participate in a photo shoot provided for in the contract with the third party organizer, there was a statement of conduct, that membership in the group would not change and that the other party was unable to discover the true position. There was continuous representation, and nothing was done.
to comply with the obligation to correct them. This is an unusual and very limited departure from the common law approach of “prudentizing the buyer.” In the UK, the franchise industry is lightly regulated compared to the US. There, the Federal Trade Commission enforces disclosure rules for franchisors. The most important legal issues for a franchise operating in this country are: Most often, this concerns restaurants that serve alcohol. The franchise must obtain a liquor licence and renew it periodically. Failure to obtain and declare this licence can result in severe penalties and even cost the franchisee his business. In England and Wales, franchise agreements almost invariably contain express contractual provisions setting out franchisees` breaches leading to the right of termination. In practice, it is much less likely that franchisees will also have a contractual right to terminate.
The courts will not attempt to change the termination provisions agreed to by the parties, except in very exceptional situations, which are highly unlikely in practice in a franchising context. In addition, regardless of the provision of the contract, both parties have the common law right to terminate for negative or material breach by the other party. English law classifies the terms of a contract as a condition, a guarantee or an interim period. Classification is important primarily because of the impact on the remedies available to the innocent party in the event of a breach of contract. A condition is a clause that, if breached, gives the innocent party the right to treat the breach as a rejection and to terminate the contract or confirm the contract. Franchising has grown. According to the International Franchise Association`s website, franchising creates 21 million jobs at 900,000 locations nationwide in the United States and contributes $2.3 trillion annually to economic output. Franchisees have the advantage of independent ownership, with the assurance of goodwill generated by a network of businesses and the availability of support in case of business difficulties. Franchisors can develop their concepts faster with reduced capital expenditures, as their success is driven by the motivation of independent franchisees. What is a deductible? It does not matter what label the parties put on a transaction or agreement: licence, joint venture, consulting and supply agreement, dealer; If an agreement contains all the elements of a franchise, it is a franchise. Many articles have been written about the dangers of becoming a random franchise.
These dangers are real, as many have learned when faced with an unplanned enforcement investigation, a lawsuit by a terminated licensee seeking protection from franchise laws, or a major disruption to the sale of a business when the buyer`s due diligence reveals a possible unregistered franchise program. There are three main elements in defining a franchise under federal law and most state franchise laws. Essential link with the brand. The business must essentially be associated with the franchisor`s trademark or other trade symbol for it to be a franchise. This is usually done in the form of a license to use the franchisor`s name. Because franchise laws were enacted to address perceived abuses in the treatment of franchisees, courts often interpret these laws broadly. A California court found that there was a significant association with a company`s trademark, even though its use was prohibited and the mark was never disclosed to the company`s customers. The contract between the operator of an office building employee canteen and its licensor involved an essential link with the licensor`s brand, since the owner of the property knew the licensor`s reputation and, according to the court, this was sufficient to make the contract a franchise agreement. Payment of a fee. It is not necessary to call a payment made by a franchisee to meet this element of the definition. Current license payments or otherwise marked payments such as consulting fees, training fees or site support fees are sufficient provided they apply to the right to operate the Company.