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Avvocato Arlo Canella
Il mondo dell’affiliazione commerciale (franchising) è caratterizzato da dinamiche complesse e rapporti che, talvolta, possono incrinarsi: il recente caso trattato dal Tribunale di Cuneo affronta una situazione ricorrente e fa il punto sul contratto di franchising.
The world of commercial affiliation (franchising) is shaped by complex dynamics and relationships that, at times, may become strained. A recent case ruled on by the Court of Cuneo addresses a recurring issue and offers a useful analysis of franchise agreements.
At the outset, there is often mutual trust between the franchisor and the franchisee, along with the enthusiasm of embarking on a new business venture together. By signing the franchise agreement, both parties set high expectations for their collaboration.
After all, the franchisor provides the brand and its industry expertise, while the franchisee undertakes to manage the business diligently, acquire the necessary skills to become a successful entrepreneur, and, of course, pay the agreed royalties and entrance fees (for a complete overview of franchising, see our previous in-depth analysis of franchise agreements).
However, as in many business relationships, things don’t always go as planned. At a certain point in the case at hand, the franchisee accumulated debts towards the franchisor, who then sought to recover the unpaid amounts through a payment order.
The franchisee, however, raised an eyebrow and asked: “Is this claim even valid?“.
Despite financial difficulties, the franchisee began to scrutinise and challenge various aspects of the franchise agreement, questioning its transparency and fairness and even alleging potential misconduct by the franchisor. In an attempt to limit losses, the franchisee also tried to sell the business to a third party.
The Tribunal of Cuneo was thus called upon to rule on a far-from-uncommon case, offering an opportunity to reflect on franchising and the Italian laws governing commercial affiliation contracts.
When a franchisee stops paying royalties, it is often more than just a financial default—it is a clear sign that something in the franchising mechanism is not working properly. Becoming an entrepreneur does not happen overnight (we have previously discussed the concept of pilotage in another article); franchising should facilitate this transition by providing the franchisee with brand reputation and know-how. However, let’s dispel a myth: franchising does not miraculously turn anyone into a successful entrepreneur.
A franchisee must already have an entrepreneurial inclination; the franchisor provides the brand and its experience.
When the franchisee’s expectations are not met, blame is often placed on the franchisor. A financially struggling franchisee may seek to shift responsibility to the franchisor, claiming insufficient support or alleging unfair practices (it is worth noting that contractual restrictions do not necessarily amount to an abuse warranting compensation, as discussed in a previous article).
In this regard, the terms of the franchise agreement are often decisive. What truly matters is the clarity of contractual obligations, the franchisor’s fulfilment of its commitments, compliance with competition law, including antitrust regulations (we have already covered potentially abusive clauses such as fixed resale prices and minimum purchase requirements).
Ultimately, a well-structured franchise agreement, a clear definition of the services provided to the franchisee, and the actual fulfilment of those commitments are key to determining whether a franchisor is genuinely liable or not in the event of a dispute.
This is why carefully reviewing the franchise agreement and ensuring its compliance with current regulations is essential. But what exactly does the law say on the matter?
The Tribunal of Cuneo’s ruling underscores the importance of contractual details in franchising.
Law No. 129/2004 clearly establishes the guidelines that must define a franchise agreement, emphasising the requirement for a written contract and the obligation to include key details such as the amount of investments, the calculation methods for royalties, the terms of any territorial exclusivity, a description of the know-how provided, and the characteristics of the services offered by the franchisor to the franchisee.
The franchisor has a duty to be transparent and meticulous when drafting the contract, ensuring compliance with both the commitments made and the applicable legal framework. If this obligation is properly fulfilled, it becomes difficult for the franchisee to claim that their business has not met expectations, as they bear the responsibility to thoroughly review the contract, gain a clear understanding of the business plan, and carefully assess both the franchisor’s actual offerings and the viability of the business.
Indeed, in its ruling of 7 April 2023, the Court of Cuneo stated:
“With regard to franchise agreements, Law No. 129/2004 establishes a specific legal framework […], requiring under Article 3 that the contract be in writing, under penalty of nullity (paragraph 1), and that it explicitly set out the following elements (paragraph 4):
- The amount of investments and any entrance fees the franchisee must pay before starting operations;
- The calculation and payment methods for royalties, including any minimum revenue requirements imposed on the franchisee;
- The scope of any territorial exclusivity, both in relation to other franchisees and to sales channels or outlets directly managed by the franchisor;
- A specific description of the know-how provided by the franchisor to the franchisee;
- Any terms for recognising the franchisee’s contribution to the development of know-how;
- The characteristics of the services provided by the franchisor, including technical and commercial support, store design and setup, and training;
- The conditions for contract renewal, termination, or transfer.”
The ruling further clarifies:
“The explicit indication of compensation details, including the royalty calculation methods, investment amounts, provided know-how, and franchisor services, serves to offset the inherent contractual imbalance between the parties in a franchise relationship.”
This underscores the importance of contractual transparency to ensure a fair and balanced franchising arrangement.
On one hand, the franchisor is obligated to draft a precise and compliant contract, ensuring that it aligns with both the commitments made and the applicable legal framework. The agreement must clearly outline all operational aspects, conditions, and obligations undertaken towards the franchisee. On the other hand, the franchisee must exercise due diligence by thoroughly reviewing the business plan and verifying what the franchisor is actually offering.
This balance of mutual responsibilities is essential to prevent disputes and mitigate risks.
The Tribunal of Cuneo ruled in favor of the franchisor in this case, highlighting that the franchisor had clearly demonstrated its credit entitlements and had fulfilled the contractual obligations.
The objections raised by the franchisee were deemed vague and lacking solid evidence. It was noted that the franchisee only began to file complaints when faced with the demand for overdue royalty payments.
It is essential to remember that the franchisor and the franchisee are independent business entities, each responsible for its own commercial conduct.
For this reason, careful attention must be given to the details when drafting a franchise agreement, including compliance with antitrust regulations (for further insights, see our article: “The Benetton case: practical implications on the franchise agreements“). Franchising represents a significant opportunity for franchisors but can become highly risky if managed carelessly.
In summary, the Tribunal of Cuneo’s decision is primarily based on the contract, the commitments contained within it, and the available evidence. This case serves as a reminder of the importance of drafting a well-structured agreement that also complies with antitrust regulations. Although the ruling favored the franchisor this time, the lesson applies to both parties.
Through the contract, each party assumes specific obligations. In franchise agreements, some of these obligations are also established by special legislation. If the franchisor meets its commitments, there is little cause for concern. Conversely, a defaulting franchisee, as in this case, may be legally required to pay the agreed amounts for the franchise affiliation.
Avvocato Arlo Canella
