Cesar Peres Dulac Müller logo


Date: February 28, 2020
Posted by: CPDMA team

Justice closes franchise stores for violation of non-compete clause

Such convictions will be even more frequent with the entry into force of the new Franchise Law, according to lawyers.

Former franchisees have been convicted in court or in arbitration for violating non-compete clauses established in the contracts. Some decisions benefit networks such as Água Doce Cachaçaria, Sóbrancelhas and China in Box.

They establish the closing of the doors or the suspension of the activities of stores that just changed their name, keeping the same business. Such convictions will be even more frequent, according to lawyers, with the entry into force of the new Franchise Law (Law No. 13,966) on March 26. This is because article 2, item XV, subparagraph a, makes the protection of the “know-how” provided by the franchisor broader.

In Brazil, there were 2,916 franchise brands at the end of last year, with a total turnover of R$ 186.8 billion and which generate approximately 1.3 million jobs, according to a previous survey by the Brazilian Franchising Association (ABF).

One of the cases was recently judged by the 2nd Reserved Chamber of Business Law of the São Paulo Court of Justice (TJ-SP). The magistrates gave a period of five days, under penalty of a daily fine of R$ 2 thousand, for a franchisee of Água Doce Cachaçaria in Araras to close its doors. After the termination of the contract, she continued working in the same place, with a similar menu, under the name Restaurante Santa Dose Gastronomia Brasileira (interlocutory appeal no 2166612- 30.2019.8.26.0000).

The franchisor signed the contract on November 30, 2011, for a period of five years. After the deadline, there was an extension. However, due to non-payment of royalties, in addition to other fees, the cachaçaria sent an extrajudicial notice of termination in May 2018. “However, the restaurant continued to carry out the same activity, in the same place, taking advantage of the know-how provided by the franchisor. Even with a clause that prevented him from exploring similar activity for two years after termination of the contract”, says lawyer Thaís Kurita, from Novoa Prado Advogados, who defends the franchisor.

For the rapporteur of the case, judge José Araldo da Costa Telles, there was unfair competition "either because the restaurant business is maintained or because the title of the establishment itself constitutes competition, prohibited by an express contractual provision, when alluding to the dose, an expression notoriously linked to cachaça, a reference product of the appellant's business name".

The court decision has already been carried out, according to lawyer Fernanda Escobar, who advises the former franchisee. According to her, the Santa Dose denomination is nothing like the old one. “There was and is not any kind of unfair and illicit competition. The allegation that Santa Dose was selling products that are the flagship sales of Água Doce is untrue”, he says. “The two brands are undoubtedly different, that is, they start from different concepts and menus.”

The franchise agreement, adds the lawyer, is totally abusive and harms the dignity of the human person. “It practically prevents the owner of the franchised company from working in the business for two years, or any gastronomic area that the franchise deems unfair competition”, he says. She adds that the same 2nd Reserved Chamber of Business Law gave a contrary decision in a similar process, which involves another former franchisee of the same cachaçaria (process no 1004672-39.2018.8.26.0637).

A franchisee of the China In box chain also had its contract interrupted, after being in default on fees. The contract provided for a two-year period of non-compete. The franchisor claimed in the lawsuit that, even after an extrajudicial notification informing the termination, nothing was done and that, in addition to using its know-how and diverting customers, it would no longer be possible to guarantee the origin of the inputs used for the dishes, which could damage the brand's image and reputation.

In the judgment, the judges of the 1st Reserved Chamber of Business Law determined that the company no longer used the name China In box and immediately stopped providing any product or service of the brand. The decision can no longer be appealed. The franchisee does not have a lawyer in the process.

Also in São Paulo, a franchisee with two Sóbrancelhas brand stores, located in shopping malls in São Paulo, was even ordered in arbitration to pay R$ 300 thousand for violating the non-compete clauses. They predicted that he would not be able to work in the same field for three years. In this case, after receiving training, they created their own franchise network, under the contract with Sóbrancelhas.

After the arbitration award, the franchisor filed a criminal action against the franchisee's owners, alleging that they enticed the brand's customers to their new salons. They were eventually convicted of a crime of unfair competition, with three months' detention. The process runs in secrecy of justice.

According to lawyer Thaís Kurita, who has been acting on behalf of franchisors, including Água Doce Cachaçaria, Sóbrancelhas and China in Box, non-compliance with non-compete clauses has been common, especially in cases with royalty and fee debts that triggered the termination of contracts. According to her, the TJ-SP has maintained compliance with these clauses, as long as they have been written in a reasonable way. “You can't say that the franchisee can never compete in the food sector again, for example. It has to be well defined and within a reasonable period of time”, he says. “You have to protect the network.”

For ABF's legal director, Fernando Tardioli, one of the pillars of the franchise agreement is precisely the transfer of know-how. “No franchisee will open their unit without being trained by the franchisor. In addition, as the brand is already known, he has to make less effort to win over customers,” he says. In these cases, he adds, the client expects to be served without distinction with the same standard, “whether in São Paulo or Minas Gerais”, he says. He adds that “the franchisor has tested its method for years and knows how the product and service should be offered.”

Source: Adriana Aguiar via Valor Econômico.


recent posts

STF decides that collective rule that restricts labor rights is constitutional

STF decides that collective rule that restricts labor law is constitutional. The Court observed, however, that the reduction of rights by Collective Agreements or Conventions must respect the guarantees constitutionally guaranteed to workers. The Federal Supreme Court ruled that Collective Bargaining Agreements or Agreements that limit or suppress labor rights are valid, provided that […]

Read more
The eviction action in the judicial recovery

Companies that file a judicial recovery action and have their activities carried out in leased properties may, in the event of default, face an eviction action, even if the credit is listed in the creditors list. On this topic, there are some very important issues being dealt with in the courts regarding the suspension of the demand and about the resumption of the asset during the period of processing of the judicial reorganization.

Read more
Law to reduce bureaucracy of Public Records passed

On June 27th, Law nº 14. 382/2022 was enacted, whose main objective is the creation of the Electronic System of Public Records (SERP), which aims to unify the systems of notary offices throughout the country, reducing the bureaucracy of the national notary system ( the measure covers the registrations of real estate, titles and civil documents of natural persons and […]

Read more
Bidding law and the use of Dispute Boards

In large-scale contracts, complexity, amounts involved, and time are common causes of conflict between the parties. An effective option to help prevent and resolve these disputes is called a dispute board. This method, unlike mediation, arbitration and conciliation, consists of creating a council of technicians, appointed […]

Read more
Tax Benefits to the Events Sector - PERSE Law

The restrictive measures adopted worldwide to minimize the spread of Covid-19 have undeniably brought significant impacts to various sectors of the economy. The determination of isolation or quarantine to face the pandemic, the most effective measure to reduce the circulation of the contagious agent, has made the sector of culture and entertainment events […]

Read more
CVM Resolution No. 80 and the dissonance with the secrecy inherent to arbitration proceedings

In force since May 2, 2022, CVM Resolution No. 80 brings a new notice on corporate demands, regulating the registration and provision of periodic and occasional information from the issuers of securities. Such regulation was the subject of Public Hearing 1/21 and consolidated the content of Instructions No. 367 and 480 […]

Read more
linkedin Facebook pinterest youtube lol twitter Instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter Instagram