Franchise law is part of distribution law. When drafting franchise agreements, it must be considered that various legal fields need to be taken into account.
When it comes to distribution channels and sales opportunities, franchising plays an important role. Nevertheless, franchise law is not an independent legal field, but a complex part of distribution law. Since franchise law touches upon several other legal fields such as civil law, commercial law, or antitrust law, these must also be incorporated into the substantive design of a franchise agreement, explains the corporate law firm MTR Legal, which focuses one of its advisory areas on commercial and distribution law.
Commercial law plays an important role in the design of a franchise agreement. It must be ensured that the franchisee operates independently and is not pseudo-self-employed. The contract must not be designed in such a way that the franchisee provides their services to the franchisor as an employee. This means that the franchisee must and may act independently in their business operations. According to § 84 HGB, a person is self-employed if they can essentially design their activities freely and determine their working hours. The franchisee also bears an entrepreneurial risk of their own, deriving their profits from the difference between the purchase price and the selling price of the franchisor’s goods. Similarly to the commercial agent, the franchisee may have a compensation claim in accordance with § 89b HGB.
In a franchise relationship, a vertical distribution system usually prevails. The franchisor typically sets the structures, and the franchisee commits to purchasing products from the franchisor. This is also unproblematic in antitrust law terms, as long as cross-supply between individual franchisees is possible. Furthermore, the franchisor may not dictate the sale price of the goods to the franchisee; they can only provide non-binding sales price recommendations.
Furthermore, a franchise agreement is also seen as a continuing obligation. Civil law results in termination regulations from this. For example, either party can terminate the contract without notice for a significant reason in accordance with § 314 BGB. Additionally, the franchisor has pre-contractual disclosure obligations.
Lawyers experienced in commercial and distribution law at MTR Legal also provide advice on franchise law matters.
