This country-specific Q&A provides an overview to Franchise & Licensing laws and regulations that may occur in Norway.
Is there a legal definition of a franchise and, if so, what is it?
In Norway, franchising and companies operating under franchise concepts (franchisors and franchisees) are not subject to any particular franchise laws. As such there is no legal definition of a franchise under Norwegian law.
Are there any requirements that must be met prior to the offer and/or sale of a franchise? If so, please describe and include any potential consequences for failing to comply.
By offer/sale of a franchise is understood the process and agreement leading up to a franchisee entering into an agreement with a franchisor. Based on this understanding there are no franchise specific requirements that must be met prior to the offer and/or sale of a franchise. However, from a general contract law perspective, the seller/franchisor should provide truthful information relevant for the franchisee and the transaction. This applies particularly upon specific information requests from the franchisee.
Please note that for sale of existing franchises/branches, there could be competition law requirements. This includes filing of notifications to the competition authorities if the franchise has a dominant position in the market or certain revenue-based conditions are met by the parties involved in the transaction. Transfer of existing franchises/branches could also trigger information requirements to the employees, if the transaction is done as an asset transfer transaction or as part of a merger or de-merger process, as opposed to a share transfer transaction.
Are there any registration requirements for franchisors and/or franchisees? If so, please describe them and include any potential consequences for failing to comply. Is there an obligation to update existing registrations? If so, please describe.
There are no specific registration requirements or obligations to update existing registrations which are franchise specific. However, changes in the board of directors must be notified to the Business Registry and changes in ownership must be registered in the company’s shareholder’s registry and notified to the tax authorities. Failing to comply with these obligations could lead to penal and tax consequences.
Are there any disclosure requirements (franchise specific or in general)? If so, please describe them (i.e. when and how must disclosure be made, is there a prescribed format, must it be in the local language, do they apply to sales to sub-franchisees) and include any potential consequences for failing to comply. Is there an obligation to update and/or repeat disclosure (for example in the event that the parties enter into an amendment to the franchise agreement or on renewal)?
There are no mandatory disclosure requirements, such as those typically found in franchise disclosure documents (FDDs) in the US. However, a well prepared potential franchisee will likely be requesting and expect to receive the type of information usually provided in FDDs. There is also an example in case law where the court expressed the opinion that not disclosing core information about poor financial results and small profit margins for a previous franchisee in the same location, lead to the franchise agreement being deemed invalid, and the franchisor was liable for the franchisee’s financial loss.
If the franchisee intends to use a special purpose vehicle (SPV) to operate each franchised outlet, is it sufficient to make disclosure to the SPVs’ parent company or must disclosure be made to each individual SPV franchisee?
See reply A 4 above. There are no mandatory disclosure requirements. To the extent information is provided regardless of mandatory requirements, the information should at least be referred to as disclosed to the parent company, in relevant contracts with each SPV.
What actions can a franchisee take in the event of mis-selling by the franchisor? Would these still be available if there was a disclaimer in the franchise agreement, disclosure document or sales material?
Mis-selling would typically be relevant with regards to information about potential income or sales which the franchisee can expect, but also mis-selling the benefits of the franchise concept, the products and/or services offered could lead to mis-selling. Even though there are no mandatory disclosure requirements, if and when such information is provided and is deemed to be misleading or otherwise considered unlawful, the franchisee could claim that the franchise agreement is invalid or that the agreement should be terminated immediately due to breach of the agreement or the agreement being entered into on false premises. If relevant information, such as financial information, is not provided at all, this in turn could also lead to the agreement being deemed invalid. There are examples of this in case law, see the response to item 4 above.
Any disclaimer in the relevant documentation, such as the franchise agreement, any disclosure document or any sales material, would certainly be taken into consideration when considering if the misinformation should be considered as false premises, lead to an invalid agreement, or if the mis-selling constitutes a breach of the agreement.
Would it be legal to issue a franchise agreement on a non-negotiable, “take it or leave it” basis?
The principle of contractual freedom is strongly applicable in Norway. This allows for agreements based on non-negotiable terms and conditions to be entered into, however all agreements must comply with the general clauses in the Contract Act (1918). Based on an overall assessment of the specific agreement an agreement or a specific clause can be deemed invalid under Norwegian law if it is considered ‘unreasonable or contrary to good business practice’ to uphold the agreement. This also applies if a specific matter changes over time during the contract period, such that upholding the contract eventually ends up being considered unreasonable. This regulation is considered as a safety valve primarily used for contracts between professional parties and consumers, and is not commonly applied on contracts between professional business parties. A franchise agreement would be considered as a contract between professional business parties and this will have an impact on what is considered ‘unreasonable or contrary to good business practice’.
We have nearly no examples from case law where franchise agreements have been found invalid on this basis. The main issue to consider is if the franchising concept grants a reasonable and realistic way for the franchisee to actually be able to earn a reasonable living considering the time and effort required to operate the business. If the franchisor makes a solid profit from franchising fees, etc. while the franchisor is not able to earn a living operating within the parameters of the franchising concept this could be deemed ‘unreasonable’ and thus lead to the agreement being deemed wholly or partly invalid or otherwise modified by the courts.
Other issues known in case law which could lead to a franchising agreement being considered invalid are significant imbalance between the parties when it comes to the agreed length of period of notice of termination. This could also apply if agreements contain clauses allowing the franchisor to fully operate the franchisee’s business for the account and risk of the franchisee in the event of the franchisee falling ill for longer periods of time. The assessment of validity of franchise agreements is an overall assessment, but generally the courts are restrictive when it comes to overriding agreements between professional parties.
How are trademarks, know-how, trade secrets and copyright protected in your country?
The following comments should be considered a brief overview of this subject only.
Trademarks in Norway are protected under the Trademark Act (2010) and are normally registered by filing an application for registration directly with the Norwegian Industrial Property Office (NIPO) or by filing an application and obtain registration in accordance with the Madrid System which is a more practical solution for registering and managing trademarks on a global scale.
An application to NIPO must include an image of the trademark and a list of goods and services based on the Nice Classification-system, for which the trademark will be registered.
NIPO requires a registration fee determined on the basis of the number of classes of goods and services. NIPO will consider the application and assess whether the application meet the formal requirements for registration. The registered holder of a trademark will obtain protection for the trademark for use for those products and services for which the trademark is registered in Norway.
Trademarks can also be protected without registration, subject to such extensive use that the trademark is considered ‘well known’ as a mark/brand for the relevant goods/services, within its circle of customers.
Without going into the details of definitions of ‘know-how’ and ‘trade secrets’, there are legal regulations protecting trade secrets both in the Norwegian Marketing Act (2009) and in the Norwegian Penal Code (2005). Non disclosure agreements (NDA) or non disclosure clauses are commonly used in various forms of contracts such as employment contracts or business agreements where information, know-how and trade secrets are exchanged between parties.
Unlawful obtaining of knowledge or possession of trade secrets is punishable with fines or up to 1 year imprisonment. Unlawful use or disclosure of trade secrets is punishable by fines or up to 2 years imprisonment, subject to certain requirements. The unlawful use must be for business purposes in competition with the originating business and disclosure must be done with the intent of enabling someone to exploit the trade secret. This also applies to unlawful obtaining, use and disclosure of technical drawings, recipes, models, descriptions or technical aids.
Copyright is protected by the Norwegian Copyright Act (2018), which doesn’t require any registration of the copyright. The rights originate upon creation of a piece of work that is considered by law to constitute an intellectual work. This could be in the form of a written text, an image, a recording, a video, a piece of music etc. The rights to the work belong to the originator of the work, subject to exemptions in law or contract. For example, the Norwegian Copyright Act specifically dictates that rights to software created by an employee as part of fulfilment of the employment agreement, are automatically transferred to the employer. The moral rights remain with the originator.
Are there any franchise specific laws governing the ongoing relationship between franchisor and franchisee? If so, please describe them, including any terms that are required to be included within the franchise agreement.
There are no franchise specific laws governing an ongoing relationship between franchisor and franchisee in Norway, henche there are no specific terms and conditions which are mandatory to include in franchise agreements. Ordinary contract law and principles apply to franchise agreements.
Are there any aspects of competition law that apply to the franchise transaction (i.e. is it permissible to prohibit online sales, insist on exclusive supply or fix retail prices)? If applicable, provide an overview of the relevant competition laws.
Norway has implemented the EU/EEC regulation on competition law but in the following, the focus will be on the applicable regulations regarding vertical agreements and vertical restraints.
In respect of franchise transactions and franchise agreements, the franchisors and the franchisees are per definition independent businesses, and any agreements are therefore subject to the Competition Act (2004). The main rule in the Competiton Act (2004) prohibits agreements that have as their object or effect the restriction, prevention or distortion of competition.
From this there are several general exemptions referred to as block exemptions. If the parties can demonstrate that the arrangement falls within a potentially applicable block exemption the arrangement can fall under the scope of exemptions to TFEU article 101 in regulation 330/210 and the corresponding Norwegian regulation FOR-2010-06-21-898. This regulation makes exemptions from the Competition Act § 10. Examples of relevant factors would be that the parties are considered to be on different levels of the supply chain and the franchise agreement can be considered as a vertical agreement, Exemption is also made for agreements regarding transfer of intellectual property rights on conditions related to use, sale or on-sale of goods and services.
The block exemptions assume that if neither the franchisor nor the franchisee has more than 30% market share in the relevant market under the agreement and that the contract period does not exceed 5 years, the contract period is unlimited or contain provisions for automatic renewal as an implied condition.
The inclusion of certain so-called hardcore provisions will remove the potential benefit of block exemption safe harbour for the entire agreement. Such provisions include facilitation of vertical price-fixing (minimum sales prices), imposition of certain territorial or customer resale obligations/restrictions, prohibition or limitation of parallel trade and prohibition or limitation of passive sales.
In relation to parallell trade and passive sales, note that online marketing and sales with some exceptions are considered as passive sale in this context. So, in response to the examples in the question, generally it is not permissible to prohibit online sales, or fix retail prices if the parties want to have the benefit of a block exemption, however, exclusive supply can be agreed within the applicable 5 year contract period.
If the block exemption is not applicable for an agreement, individual exemptions may be granted by local authorities. Such process involves an analysis of the effects of the agreements on the competition in the market.
The 5 year limit to the contract period does not apply if the goods or services are sold by the franchisee from premises owned by the franchisor or leased from a third party which is not affiliated with the franchisee. Exemptions may still apply as long as the duration of the competition clause does not exceed the time period which the franchisee utilises these premises.
Further, the parties can, within the block exemption, agree that the franchisee is prohibited from purchasing, selling or on-sell goods or services from others after expiry of the franchise agreement, as long as such goods or services are competing with the goods or services included in the agreement. This is conditional upon the franchisee selling such goods from the same premises in which the franchisee operated its business during the contract period. Such extended prohibitions are also conditional upon such prohibition being required to protect know-how information transferred from the franchisor to the franchisee. Such extended prohibition is limited to 1 year after expiry of the franchise agreement.
Finally, the block exemption does not apply to vertical agreements containing clauses prohibiting members of a selective distribution system to not sell certain competing supplier’s brands.
Are in-term and post-term non-compete and non-solicitation clauses enforceable?
Assuming such non-compete and non-solicitation clauses are otherwise lawful, they can be enforced. However, from a practical perspective enforcing such clauses could be difficult as it will require some degree of evidence of breach which may be difficult to obtain. Please also note that under Norwegian law there are regulations limiting the extent of non-compete and non-solicitation clauses, based on a balanced assessment of the interests of the protected party and what is considered required to protect against competition while still leaving the other party with a reasonable opportunity to make an income.
Are there any consumer protection laws that are relevant to franchising? Are there any circumstances in which franchisees would be treated as consumers?
Norway has strong consumer protection laws which are applicable for the sale of goods, which would be relevant in the business relation between a franchisee and consumer customers. Consumer customers may also make claims for refund, compensation, redelivery of goods, etc. against other companies in the supply chain. Depending on the set-up of the supply chain in the franchise organisation, such claims may therefore be made against the franchisor. It is therefore important to regulate in the franchise contract how claims from consumer customers shall be dealt with and mitigation of the financial risk for such claims. Norway also have consumer protection laws for certain financial agreements.
The definition of ‘consumer’ implies the subject to be a physical person acting in a non-business context. A franchise agreement would normally by its nature be business related to such extent that the franchise arrangement would normally fall outside the definition of a consumer relation. Careful consideration should be made if an individual person is required to undertake obligations as part of a franchise relation, for example by making guarantees or providing security. Depending on the circumstances it can be argued that the person has acted as consumer.
Is there an obligation (express or implied) to deal in good faith in franchise relationships?
Norwegian contract law in general is based on an implied obligation to deal and act in good faith and in accordance with good business practice in contractual relationships. In franchise relationships this has been the topic in case law with the example as referred to in response to item 7 above, whereby a franchise agreement was deemed invalid because the franchisor had not provided sufficient and relevant information to an inexperienced franchisee hence it was unreasonable to uphold the agreement. There is also a ‘good faith’ standard/principle applicable for the interpretation of contracts, such as a franchising agreement. According to this standard/principle, a party to an agreement that understands or should understand that the other party has a different understanding of a clause or wording, can’t expect its own understanding to be applicable, because that party is not acting in good faith.
Are there any employment or labour law considerations that are relevant to the franchise relationship? Is there a risk that the staff of the franchisee could be deemed to be the employees of the franchisor? What steps can be taken to mitigate this risk?
These are particularly important matters to consider, as there are driving forces in Norway lobbying to extend the responsibility of employers towards their employees, also to include franchisors in relation to franchisees’ employees. Please review the response to item 31 below for more information on this particular subject.
The matter of clearly identifying employees as opposed to independent contractors, consultants, agents or franchisees is of great importance for the entities which may end up being considered as employers for such individuals. If the agreement between the franchisor and franchisee (as an individual person) constitutes an employment relationship this could have a variety of consequences for the franchisor, such as obligation to pay payroll tax, withhold salary tax, contribution to mandatory pension plans, etc.
The key to mitigating such risk is object to the franchise agreement, and in understanding what constitutes an employer-employee relationship and actively attempt to avoid including such elements in the franchise agreement.
Further, in order to mitigate such risks it is important to maintain the formal and financial separation between the franchisor’s and franchisee’s organisations while trying to avoid any elements which could lead to arguments that an employee-employer relation has been established with the franchisor as the employer, or that there is a joint responsibility or liability between the franchisor and franchisee towards the employees of the franchisee.
This includes clearly addressing facts in the franchise agreement, such as the fact that franchisee (if that is an individual) or the owner/operator of a franchisee (if it is a company) is operating a business at its/his/her own expense and risk, including payment of taxes and VAT, and that the franchisee or the franchisee’s employees are not employed by the franchisor or franchisor’s organisation.
All employment agreements between the franchisee and its employees should clearly state that the franchisee is the employer.
Other elements in the franchise agreement which should be carefully considered is requirements for – and level and intensity of personal involvement of an individual on the franchisee’s side, such as the owner/manager, requirements for the franchisee or franchisee’s employees to subordinate to instructions and control from the franchisor. Which entity provides business premises, materials or equipment used in the business should also be considered. Also consider how the franchisee’s compensation is described. Terms which may imply that there is a form of salary from the franchisor should be avoided.
Even wording and layout of advertisements for open positions in the franchisee, should be carefully considered to mitigate risk that franchisor is considered as employer or have joint responsibility for franchisee’s employees.
Is there a risk that a franchisee could be deemed to be the commercial agent of the franchisor? What steps can be taken to mitigate this risk?
There are risks that a franchisee could be deemed to be a commercial agent of the franchisor. The key to mitigating such risk is object to the franchise agreement, and in understanding what constitutes an agency relationship and by attempting to avoid including such elements in the franchise agreement.
Clearly stating the nature of the relation between the parties is important, but also ensuring that the adherence of the franchise agreement is in line with what would be expected of a franchisee, as opposed to a commercial agent. One of the key factors is that franchisees are entering into agreements with customers in their own names and at their own risk and accounts, and not as a middleman on behalf of the franchisor. As such, a franchise concept whereby the franchisee sells goods on behalf of the franchisor rather than for the franchisee’s own account could be at risk of being deemed as a commercial agent relationship, which in turn could trigger the application of mandatory legal regulations in the Agency Act (1992).
Are there any laws and regulations that affect the nature and payment of royalties to a foreign franchisor and/or how much interest can be charged?
Generally there are no regulations, except for the general regulations in the Contract Act that agreements must not be ‘unreasonable’ or ‘defy good business practice’, affecting the nature and payment of royalties to a foreign franchisor or how much interest can be charged.
In relation to common interest/related party transactions the term and conditions must adhere to the arm’s length principles, otherwise the payment can be disputed by the tax authorities.
Further there is no restriction on currency transfers out of Norway, except for transfer of physical cash above certain amounts, which must be declared to customs authorities.
Is it possible to impose contractual penalties on franchisees for breaches of restrictive covenants etc.? If so, what requirements must be met in order for such penalties to be enforceable?
If a franchise agreement contains contractual penalties, such as (daily) fines or fixed fines as penalty for default, these penalties are directly enforceable as long as the penalty is in the form of a pecuniary claim. The enforceability further requires that (i) the claim must be due for payment and the payment has been defaulted; (ii) the claim must has a valid legal basis for enforcement, for example a ruling from an ordinary court or a court of arbitration an in-court settlement or a promissory note (as long as the document meet certain formal requirements); (iii) the legal basis for enforcement must refer to the plaintiff as the rightful owner of the claim (or someone that the plaintiff has acquired the claim from) (iv) for certain types of legal basis for enforcement, it is required that a letter of notice of enforcement is sent to the debtor with a 2 week notice period, prior to commencing the enforcement process.
Other contractual penalties which may be enforced are obligations to vacate properties, obligations to hand over/return tangible properties, obligations to deposit securities as well as other obligations to act or obligations to refrain from certain acts. The enforcement of obligations to act or refrain from certain acts may not be directly enforceable, but may, subject to failure to comply, lead to claims for compensation or day fines which may be enforced directly.
What tax considerations are relevant to franchisors and franchisees? Are franchise royalties subject to withholding tax?
There are no specific tax regulations for franchising arrangements in Norwegian tax legislation. Franchise fees are generally fully tax deductible as business cost. The franchisee should consider the timing of deduction of one-time franchise fees, but normally treat these as time limited licences amortised over life.
A franchise arrangement should not in itself constitute a permanent establishment in Norway for a foreign franchisor. However, if the ownership of goods stays with the franchisor until sale by the franchisee, one should consider whether the arrangement also include an agent / commissionaire relationship.
The franchise fee may consist of various elements with different VAT status, however – in principle the franchise fee will normally be considered as a single supply attracting VAT with a 25 % rate. If the franchisor is established outside of Norway, the Norwegian franchisee will be obliged to calculate Norwegian VAT in compliance with the reverse charge scheme.
Input VAT is generally deductible both with respect to one-time payments and periodically paid franchise royalty provided that the franchisee is registered for VAT in Norway.
When a new business is started up under a franchise arrangement, the franchisee may have a period of investments before the business reaches the turn-over threshold of NOK 50 000 for VAT registration, hence not be able to deduct/get refund of input VAT. If costs related to goods and services exceed NOK 250 000 it may be possible to pre-register for VAT on certain conditions. If a pre-registration is not granted, the franchisee will be entitled to make a retrospective deduction for input VAT on costs incurred prior to the formal VAT registration.
Royalty payments from Norwegian sources are currently not subject to Norwegian withholding tax under domestic legislation. However, see q. 31 regarding expected changes.
Does a franchisee have a right to request a renewal on expiration of the initial term? In what circumstances can a franchisor refuse to renew a franchise agreement? If the franchise agreement is not renewed or it if it terminates or expires, is the franchisee entitled to compensation? If so, under what circumstances and how is the compensation payment calculated?
There are no mandatory rights for a franchisee to request renewal on expiration of the initial term, unless such right is agreed upon. As such a franchisor is generally entitled to refuse renewal of a franchise agreement. However, if a franchisee can argue that not renewing a contract would be considered unreasonable or defying good business practice, the refusal of renewal could be disputed. This has been discussed in legal litterature, particularly related to situations where a franchisee has met all sales requirements and otherwise acted in accordance with the franchise agreement, or situations where the franchisee would be left unable to recover investments made during the contract period, due to short remaining contract period.
The issue with compensation upon expiry or termination of a franchise agreement has been subject to studies and legal writings in Norway and is a complex matter. The starting point is that there are regulations in place for compensation in the Norwegian Agency Act, which regulates the business relation between commercial agents and their principals. There are examples in case law where plaintiffs have argued that rights to such compensation also exists in other business relations, such as agreements for sole distributors, based on interpretation by way of analogy from the Agency Act.
Without going into the finer details of the nature of such compensation, some studies argue that the principles of compensation which by law is applicable on agency agreements could also apply to franchise agreements. It is also argued that unwritten principles of compensation apply generally without analogy from the Agency Act.
In case law, there are examples of cases involving sole distributors, but not franchisees. The Surpreme Court rejected such a claim from a sole distributor in 2014 clearly stating that the principles of compensation derived from the Agency Act was not applicable by way of analogy in a case involving a sole distributor. Borgarting Appeal Court has concluded similarly in a case from 2015. The same arguments used in these examples from case law, can be applied also in franchise agreements.
In conclusion, the Surpreme Court has been reluctant to apply the compensation principles in other relations than on agency agreements. The matter of compensation should however be clearly regulated in the franchise agreement in order to establish the parties’ common opinion on this matter at the start of the contract period and therefore mitigate the risk of claims for compensation based on the principles briefly described above, upon expiry.
Please note that according to the Tenancy act (1999) a lessee of a business property could on certain conditions be entitled to compensation from the lessor for the gain obtained by the lessor as a consequence of the circle of customers developed by the lessee. From a franchisor perspective it should be considered to enter into any lease agreement with a franchisee separately from the franchise agreement, and preferable by a separate entity other than the franchisor.
Are there any mandatory termination rights which may override any contractual termination rights? Is there a minimum notice period that the parties must adhere to?
Referring to the response to item 7 and 13 above, there are some general mandatory termination rights under Norwegian contract law. Agreements may be terminated if deemed to be invalid, for examples if it would be considered ‘unreasonable or contrary to good business practice’ to uphold the agreement. An agreement may also be terminated as invalid if it would be considered in defiance of honesty and good faith. For more an elaborative response on the ‘good faith’-standard, see response to item 13 above.
There is no fixed minimum notice period that the parties must adhere to, but any agreed minimum notice period should be determined on the basis of what would be considered reasonable. In such case, the notice period for the rent of the commercial property on which the franchisee is operating could be take into consideration. Notice periods for termination of employment agreements and termination consequences of other relevant contractual obligations for the franchisee may also be object to consideration.
Are there any intangible assets in the franchisee’s business which the franchisee can claim ownership of on expiry or termination, e.g. customer data, local goodwill, etc.
Please note that the term ‘goodwill’ has a specific meaning in a tax and accounting perspective which could vary in different jurisdictions and under different accounting principles.
Normally a franchisee can’t claim ownership to goodwill upon expiry, but from an accounting perspective this could be considered differently and would be subject to a specific assessment on a case by case basis.
The matter of right to compensation for goodwill is addressed in the response to item 19 above. The issue with claims for compensation upon expiry relates to matters regarding goodwill such as brand recognition, brand building, local customer base etc.
Regarding rights to customer data, it is important to regulate these matters in the franchise agreement and also in a separate data processor agreement to determine the rights of ownership and right to process customer data in accordance with GDPR. If no agreement is made, and the customer data is processed solely by the franchisee (as data controller) in a system outside the franchise concept, the franchisee can argue that the customer database belongs to the franchisee. Under certain circumstances, it can also be argued that the customer data/database, is in joint ownership and is subject to joint data controller responsibility.
Is there a national franchising association? Is membership required? If not, is membership commercially advisable? What are the additional obligations of the national franchising association?
There are no mandatory national franchising association in Norway, so no membership is required. As of now (2019) there is no active franchising association in Norway. Subsequently there are no franchising organisations in Norway with a link to the European Franchise Federation (EFF) or the International Franchise Association (IFA), and as such the ethical codes applied by these organisations are not considered mandatory, but are still applied by many franchise concepts in Norway.
Are foreign franchisors treated differently to domestic franchisors?
From a franchise legal perspective, foreign franchisors are not treated differently to domestic franchisors.
Are there any requirements for payments in connection with the franchise agreement to be made in the local currency?
Payments can be agreed and made in any currency. However, the parties should consider agreeing on exchange rates clauses for example by referring to relevant exchange rates offered by a named bank, between the local currency and the agreed currency as a method for settling any possible exchange rate issues. The parties can also consider opening separate bank accounts, denominated in specific currencies for receiving payments in the relevant currencies, to avoid exchange disputes upon payment.
Must the franchise agreement be governed by local law?
No, there are no requirements for the franchise agreement to be governed by Norwegian law. The parties may agree on foreign law in choice-of-law clauses in the franchise agreement.
What dispute resolution procedures are available to franchisors and franchisees? Are there any advantages to out of court procedures such as arbitration, in particular if the franchise agreement is subject to a foreign governing law?
Available dispute resolution procedures are the ordinary courts and arbitration. The arbitration option is usually agreed in advance in the franchise agreement, but can also be agreed after a dispute has arisen. The advantages of arbitration are that disputes and settlements are kept from public access and will normally not attract publicity. Arbitration will normally be a faster process and the dispute will reach a final conclusion more swiftly than a full-fledged lawsuit for the ordinary courts, as a decision from an arbitration court can normally not be appealed. Cost wise, the choice between ordinary courts and arbitration can vary. Normally the legal fees to lawyers are greater for disputes solved by the ordinary courts due to such cases being appealed. However, this is often balanced out when comparing with costs for arbitration, since the parties have to cover the fees of the arbitrators in addition to legal fees to the lawyers.
Does local law allow class actions by multiple franchisees?
On certain conditions, franchisees (or other groups such as a group of customers) could file for a class action lawsuit. A class action lawsuit is conditional upon the following: (i) the claims are based on substantially the same factual and legal basis; (ii) the claims can be tried by the court based on the same procedural rules and before the same panel of judges; (iii) a class action lawsuit is considered the best procedure; and (iv) it is possible to appoint a group representative.
Must the franchise agreement and disclosure documents be in the local language?
There are no local language requirements for franchise agreements or other documents related thereto. Please note however that if a foreign language is relevant, English language documents should be preferred from a practical point of view.
Is it possible to sign the franchise agreement using an electronic signature (rather than a wet ink signature)?
The franchise agreement can be signed using an electronic signature. For the event of a dispute regarding the genuineness or authenticity of the signature, it is recommended that the process leading up to the signed agreement and events after the signing can be documented to support the claim of genuine execution of an agreement. This could for example include written summaries of negotiations, e-mail correspondence, copies of board decisions etc.
Can franchise agreements be stored electronically and the paper version be destroyed?
From a legal perspective there are no requirement to keep paper versions of agreements. However, in the event of a dispute, it is recommended that original versions (paper versions) are available as evidence if the dispute relates to the genuineness or authenticity of the agreement. Please note that any electronic storing of agreements, must comply with GDPR/data protection requirements if the agreement contains personal data of individuals resident in Norway or EEC.
Please provide a brief overview of current legal developments in your country that are likely to have an impact on franchising in your country.
Withholding tax on royalty payments
The Norwegian Ministry of Finance is currently preparing a proposal for introducing withholding tax on royalty payments to foreign recipients, in domestic tax legislation.
When setting up a new franchise arrangement with Norwegian franchisees, a foreign franchisor should consider whether the applicable tax treaty, if any, allows Norway to impose such withholding tax and whether a tax allowance would effectively be applicable in the country of the recipient.
Franchising in general
Over the past decades there have been a number of initiatives to pass a franchise law, in Norway. The latest initiative came in 2018. The proposal included obligations for franchisors to register name of franchisees in a public registry, including information such as contract lengths, number of employees in the franchisees etc.
The proposal also suggested to grant rights for employees of the franchisee towards the franchisor, such as joint employer’s liability, right to representation in the board of directors of the franchisor, joint obligations for the franchisor and franchisee to ensure health & safety for employees of the franchisee.
The proposal also suggested obligations for the franchisors to inform franchisees of the number of other franchisees, franchisor owned stores/units, locations of other franchisees within a 50 kilometre radius as well as historical data over financial results for other franchisees, financial results for franchisees in the same premises or similar premises as the premises in which a franchisee is considering establishing and an overview of bankruptcies and disputes involving franchisees in the area over the past 5 years.
Finally, the proposal also suggested that the franchisor should openly inform possible franchisees of any terms in the franchise agreement which could have a financial consequence for the daily operation. These terms should not be subject to confidentiality clauses. It was also suggested that the parliament considered regulating terms of termination of franchise agreement so that franchisors should not upon its sole discretion be allowed to terminate the agreement upon expiry of the agreed contract period.
The proposal was voted down by the Parliament in 2018 but there was a unanimous decision by the Parliament to further consider the franchising model in respect of employer liability and rights for employees as well as franchisees position towards franchisors. As of September 2019, there is no publicly available documentation suggesting that there is any currently active ongoing work conducted by the Norwegian government to address these matters and follow-up on the Parliament’s decision to look closer into regulating franchising in Norway.