In Switzerland, the legal rules applicable to franchise agreements are not specified in the Code of Obligations. Instead, courts must determine for each particular franchise relationship whether it is based on all its economic characteristics, a partnership franchise (to which the rules on partnership contracts in Articles 530ss of the code may apply by analogy) or a subordination franchise (to which the rules for work or agency contracts in Articles 319ss or 418a ss of the code may apply by analogy in favour of the franchisee).
This basic distinction has numerous legal ramifications, including, in relation to:
- franchise parties’ mutual rights and obligations
- franchisee’s social security contributions;
- franchise termination and termination consequences (eg, compensation by the franchisor for the franchisee’s client base); and
- franchise disputes.
The competent jurisdiction for a recent Canton of Zurich High Court decision (ZR 112/2013, P 65ss) provides welcome and detailed guidance on how franchise systems may be structured from a business perspective in Switzerland, with a view to avoiding any uncertainty as to legal characterisation alternatives.
Facts
The dispute involved a franchisee who agreed to provide recruitment consultancy services within the franchise system of the franchisor. The franchisee was:
- granted exclusivity in a certain territory for specific business sectors (ie, facility management, conveyance and hoisting technology industries)
- entitled to profit fully from public relations, marketing and website promotion efforts by the franchisor; and
- bound to use the franchisor’s branded printed materials for its recruitment services.
In consideration of this exclusive right, the franchisee was obliged to:
- pay €40,000 upfront in instalments as an entry fee and pay royalties to the franchisor
- undergo compulsory introductory training;
- fulfil certain advertising requirements;
- have its employees trained by the franchisor; and
- support the franchisor’s recruitment consultant network.
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