Common agreements in the franchise contract

It is common in franchise contracts to include non-compete and exclusivity clauses (among others), as well as indications on the price at which final products must be sold. Are these clauses valid? Could they be considered restrictive of competition?

The clause whereby the franchisee may not compete with the franchisor or other franchisees (during the term of the contract or after its termination) is valid. However:

· The post-contractual non-compete prohibition cannot extend beyond one year from the termination of the franchise contract.

· The prohibition must be justified (it must be necessary to protect the franchisor's know-how). · It must be limited to the territory where the franchise has been operated; it cannot cover territories where the franchisee has not operated. Exclusive clauses are also valid, in three specific areas:

· Territorial, so that the franchisor undertakes not to open new premises in the area agreed with the franchisee.

· Purchase of all or part of the products from the franchising company.

· Distribution, so that the franchisor undertakes not to market its products to other stores located in the area agreed with the franchisee.

Regarding price fixing, there are limitations. The franchisor can recommend prices and establish a maximum percentage increase or decrease in prices by the franchisee,

but cannot set fixed or minimum prices, as this is a restrictive practice of competition.

The imposition of fixed selling prices by the franchisor leads to the nullity of the franchise contract. If you are going to be involved in a franchise contract, either as a franchisor or franchisee, our professionals will assist you in negotiating the conditions. The imposition of fixed selling prices by the franchisor leads to the nullity of the franchise agreement.

 

If you are going to intervene in a franchise contract, either as a franchisor or franchisee, our professionals will assist you in negotiating the conditions.