The NFC is the result of self-regulation. The process of self-regulation means that stakeholders in a certain sector draw up their own rules. The same has happened here, upon request and with the help of the ministry. Such rules are usually non-binding, which means that parties are free to deviate from them.
Franchisees have welcomed the NFC met open arms. However, many franchisers felt their voices were not heard in the process, not even after changes were made inspired by the consultation round. They feel that the NFC does not respect elementary principles, such as freedom of contract, and does not do justice to their interests. The Dutch Franchise Association has also distanced itself from the NFC. Since many franchisers have refused to declare the Code applicable to their agreements, Minister Kamp announced in the autumn of 2016 that he would legally enshrine the NFC.
Bill
In Book 7 of the Dutch Civil Code a special arrangement will be introduced for the franchise agreement, which offers a legal basis to designate the NFC through an order in council. The bill provides definitions of the terms ‘franchise formula’, ‘franchiser’, ‘franchisee’ and ‘franchise agreement’, inter alia.
The bill is a so-called ‘delegation clause’ and contains only a brief summary of the topics the Minister intends to regulate. The bill introduces the option of designating a code of conduct to give further substance to the rules. As soon as the NFC has been designated by order in council, the NFC will become binding under this section of the law on both franchisers and franchisees.
Elements of the Code of Conduct for the Franchise Practice
The bill describes which elements the code of conduct must contain. The code of conduct must contain clauses about recruitment and selection of franchisees, and must specify what information must be provided in good time by the franchiser to the franchisee before concluding the franchise agreement. The code of conduct also contains the obligations of the franchiser and the franchisee in the pre-contractual phase and rules about possible preliminary agreements.
The code of conduct arranges for duties to provide information during the performance of the agreement, and collective consultations. The code contains rules on clauses that may be included in the franchise agreement concerning purchase, non-competition after the end of the agreement, and unilateral termination by the franchiser.
The code has to provide for a way of alternative dispute resolution between franchiser and franchisee. This alternative will not replace the possibility to go to an ordinary court.
According to the explanatory notes with the bill, the NFC meets all the above rules.
‘Comply or explain’
It is possible to deviate from the code of conduct, if this has been agreed in a written clause in the agreement. It is also mandatory to give reasons for the necessity of the deviation. This article expresses the principle of ‘comply or explain’ on which the NFC is based. In an order in council further rules may be set out about the form of the reasons given for deviations from the code of conduct, and the way in which these must be announced. The bill provides that the franchisee can nullify the franchise agreement (or a clause in it) if the code of conduct is deviated from without reasons, or with poor reasons.
Conclusion
With this bill Minister Kamp has created an option for enshrining the NFC in the Civil Code. After the bill is adopted, the NFC will still have to be designated by order in council. Franchisers and franchisees will retain the option of deviating from the NFC, but they must do so expressly and give reasons. In the coming six weeks we will see how the sector responds to the bill. After that term, the normal legislative process will follow. Incidentally, it concerns the text of this bill, not the NFC itself. So, the order in council and the code of conduct are not subjected to a full review by Parliament. This is very regrettable, since support in the sector – on the part of the franchisers – seems to be small.