By Maître Rémi de BALMANNManaging Partner, D,M&D, Franchising and Distribution Department
Rémi de Balmann is Coordinator of the FFF College of Experts. To find out more, click HERE
Commenting on a recent decision by the French Supreme Court (Cour de Cassation) in a dispute between a franchisor and one of his former franchisees, the author, a lawyer, welcomes the judges' recognition of the clauses essential to the protection of know-how.
At a time when - quite legitimately - the Macron law law, it is reassuring to note that the Cour de cassation is taking care to punish, as it should, the post-contractual disloyalty of a franchisee who was accused by the franchisor of creating a competing network.
We know that, among a number of other disparate provisions, the Macron law - with regard to commercial distribution networks - established the principle that "any clause having the effect, after the expiry or termination of one of the contracts mentioned in article L. 341-1, of restricting the freedom to exercise the commercial activity of the operator who previously signed this contract is deemed unwritten".
The only exceptions to this principle are clauses which - concerning goods and services in competition with those which are the subject of the contract - are limited in time (one year after expiry or termination of the contract) and space (land and premises from which the operator carries on business during the term of the contract) and are "essential for the protection of know-how (...)".
Does a franchisor have the right to prohibit its franchisees from creating a competing network?
As this much-discussed provision is due to apply from August 6, 2016, what will become of clauses that not only set out a post-contractual non-competition or non-affiliation obligation, but also go so far as to extend the prohibition on franchisees owning several stores from affixing a common sign or even "creating a competing network in all the towns where the franchised institutes are located (...)"?
This was one of the questions decided by the decision of the Commercial Chamber of the French Supreme Court on January 19, 2016 (pourvoi n° 14-16272).
In this case, a multi-franchisee of a network ofbeauty salons in the Nantes region abruptly terminated all his contracts with the franchisor. As a result, no fewer than 7 beauty salons left the network, and - to make matters worse - the former franchisee adopted a new common brand name. This is a typical example of the betrayal of the regional "baron".
In addition to ordering the company to pay substantial damages for wrongful termination of its contracts, the Court of Appeal applied the clause prohibiting the creation of a competing network (Paris Court of Appeal, 05/02/14, Pôle 5, chamber 4, RG: 12/18858 - JurisData 2014-001767).
Yes, under certain conditions, answers the Cour de cassation.
In support of his appeal to the Cour de Cassation, the former franchisee argued that "the benefit of the exemption provided for in article 5 b) of regulation 2790/1999 in favor of post-contractual non-competition clauses is reserved solely for those, of one year's duration, which are limited to the premises and land from which the person who has subscribed to it has operated during the term of the contract and which are essential for the protection of the know-how transferred to him by his co-contractor ; by declaring valid the clause prohibiting the franchisee from creating a competing network in the same field, in all the towns where the institutes are located (...), when such a clause, to be valid, should have been limited to the premises where the 'franchised' company operated its institutes, the Court of Appeal violated the aforementioned text".
However, according to the French Supreme Court: "By noting that the disputed clause did not prohibit the continuation of the franchisee's activity, but only the creation of a competing network, that it was limited in time to one year and, in this case, to the cities where the franchisee's institutes were operated, and that it was proportionate to the franchisor's interest in preserving the existing network, the Court of Appeal (...) was able to decide that the clause was valid"..
May this be a sign that judges will take a protective view of this famous Macron law - beyond franchisors - towards networks, and hence franchising itself!
Opinion column published on 11/02/2016 on the Franchise Magazine website
Also read on the subject:
A change of sign validated by the French Supreme Court
