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Franchise Guide
The basics of franchise law
Contrary to what many candidates think, in many countries, there is no specific law regarding franchising but there are laws that apply to franchising just as to other forms of networks.
These are the laws regarding:
- Competition,
- Brand name rights,
- Employment,
- Commercial leasing, etc
(Important : This should not prevent you from checking whether your country has laws that just apply to franchising)
This is why the European code of ethics, which is a code for “good conduct” developed by franchisors to discipline franchising practices is often used as a reference for the courts.
This defines what professionals consider “normal” and well-balanced.
In the absence of a law regarding franchising, the contract is therefore the essential document in the relationship between the franchisor and the franchisee.
Typical contracts must be avoided and contracts are preferred that are made-to-measure for a specific network, thereby avoiding the “approximations” that one can end up regretting.
Regarding France and Spain, (the Doubin Law and Law 2485/1998 respectively), for instance, do not regulate franchising but instead pre-contractual relations, aiming to assist candidates to know the information considered essential for a potential franchisee to decide investing in a certain franchise with full knowledge. Other countries are preparing such laws…
Lastly, the European exemption regulation designed by the European Commission is occupying an increasingly large space in the law and is gradually becoming the most important text to regulate franchising in EC countries.
Regulation (CE) Nº 2790/1999 of 22 December 1999 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices, benefits some vertical agreements (including franchising) of a block exemption to those restrictions included in Article 81(1) of Rome Treaty, which would have limited its application and current strengthening.
This Regulation considers that franchising can improve economic efficiency within a chain of production or distribution by facilitating better coordination between the participating undertakings; in particular, it can lead to a reduction in the transaction and distribution costs of the parties and to an optimisation of the sales and investment levels.
Thus, as per this block exemption regulation the above - mentioned Article 81(1) shall not apply to agreements or concerted practices entered into between two or more undertakings each of which operates, for the purposes of the agreement, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services ("vertical agreements").
This exemption shall apply to the extent that such agreements contain restrictions of competition falling within the scope of Article 81(1) ("vertical restraints").
For complete text of Regulation (CE) Nº 2790/1999 of 22 December 1999 , see http://europa.eu.int/smartapi/cgi/sga_doc?smartapi!celexplus!prod!DocNumber&type_doc=Regulation&an_doc=1999&nu_doc=2790&lg=EN
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