French Cour de Cassation - Commercial division, December 18, 2012, n° 11-27.068, F D, Sté Carrefour proximité France c/ B

The French Cour de Cassation considers that a non-reaffiliation clause that is not proportionate with the legitimate interests of a franchisor must be invalidated.

A franchise agreement stipulated that in the event of early termination, the franchisees could not use a nationally or regionally renowned trade name for a period of one year, and could not sell goods whose brands were linked to these trade names within a radius of five kilometres.

The agreement was terminated by the franchisees and the arbitration court declared the termination to be abusive, the fault lying with the franchisees, which had to indemnify the franchisor. However, the Court of Appeal invalidated the non-reaffiliation clause and rejected the franchisor's claim for damages.

In its appeal before the Cour de Cassation, the franchisor had underlined the fact that the affiliation clause, by only restricting the franchisee's freedom to join another network but allowing it to continue a commercial activity, needed only to be limited in time and in space in order to be valid, as opposed to a non-compete covenant which also prohibits an activity from being carried out on an individual basis and which must therefore be necessary to the protection of the franchisor's rights.

The French Cour de Cassation highlighted the context of the case and recalled that the local food distribution activity is carried out almost systematically within the framework of organised franchise networks and that the franchisees' businesses were run within a small county town. As such, it considered that this clause, which prevented the franchisees from working with other trade names and selling products whose brands were linked to these trade names, for a year and within a five kilometre radius, deprived them of a structured procurement network and made impossible for them to carry on their business in profitable economic conditions. The clause was therefore not proportionate with the legitimate interests of the franchisor and should be invalidated.