Franchisee Associations and Cooperatives in France

Franchisee associations and cooperatives in France: the network has no legal person

A franchise network in France has no legal personality of its own. Franchisee associations and cooperatives in France exist because the "network" — the entity everyone inside it addresses as the network — is not, in law, a person. It has no organ capable of collective expression and no one who represents it as such. At most it is a centre of interests. This is the starting point for any foreign brand or franchisee candidate weighing how collective relations in a French franchise are organised, because the two institutional techniques that give the collective dimension a legal shape — the association and the cooperative — both exist to remedy the absence of any legal person standing behind the network.

The absence of legal personality does not mean the network is legally ignored. French law takes account of the reality of the network in several respects: in competition law, in the law of obligations, and through the opposability of contracts to third parties. Since the law of 6 August 2015, the Commercial Code even devotes Title IV of its Book III to "commercial distribution networks", and Article L 341-1 of the Commercial Code addresses the body of contracts that bind a grouping of merchants to a retail operator. That title is narrow. The richer reality is the web of relationships that transcend the purely individual link between franchisor and each franchisee. Those relationships are collective, and they can be organised with greater or lesser formality.

Collective relations in a French franchise network: vertical and horizontal

Signing a franchise contract is not only an undertaking towards one person, franchisor or franchisee. The act amounts to affiliation to a network whose collective dimension raises questions that the individual contract does not answer. Understanding franchisee associations and cooperatives in France starts with a factual observation about how most networks operate. Relationally, a franchise network runs vertically: at the apex the franchisor maintains a link and an exchange with each franchisee taken individually; the franchisees, for their part, reserve their ideas for the franchisor alone and rarely communicate with one another. The network functions little, if at all, horizontally. In practice a franchise network too often reduces to a sum of franchisees isolated on their territories.

The organisation of the network depends above all on the franchisor's will. The franchisor alone decides to franchise its concept, to duplicate its know-how (savoir-faire), and may franchise only part of the network, keeping branches or subsidiaries alongside. That freedom is real, but it is qualified. Strategically, the franchisor must relay the collective dimension at least informally — annual conventions are one expression of this, tending both to bind the network together and to loosen tongues. Institutionally, the distinction between franchisor and franchisees is not always sharp: the cooperative structure allows the two qualities to be imbricated, so that franchisees participate directly in the policy of the franchisor of which they legally form part. And the franchisor's organisation of the network does not prevent franchisees from setting up their own organisation within it — the object of a franchisee defence association, whose intervention serves to rebalance relations inside the network.

Franchisee associations in France: formation under the loi of 1 July 1901

Of the two techniques for organising collective relations, the association is the one that proceeds from contractual freedom alone. An association is a contract, as the very title of the loi of 1 July 1901 on the contract of association makes clear. Article 1 of that law defines it as the agreement by which two or more persons pool, on a permanent basis, their knowledge or their activity for a purpose other than sharing profits, and provides that its validity is governed by the general principles applicable to contracts and obligations. A franchisee association therefore has a non-profit purpose: it may pursue a profitable activity, but the enrichment of its members cannot be its aim, on pain of being a false association and a true company.

Article 2 of the loi of 1 July 1901 allows associations to form freely, without prior authorisation or even prior declaration. That said, an association acquires legal capacity only if it is declared in accordance with Article 5. When several franchisees decide to form an association, they should make it a genuine legal person able to conclude contracts and, above all, to sue. Personification requires a declaration to the representative of the State in the department of the seat, a receipt (récépissé) issued within five days, and publication of an extract in the Journal officiel. A duly declared association may then sue, receive its members' dues, and hold the premises needed for its purpose — enough for a franchisee association to do the core of its work: to discuss and to defend, in court where necessary, the interests of the network's franchisees.

The object of a franchisee association is to federate the franchisees of a network in order to organise the defence of their collective interests. Its intervention may be occasional — to resolve a crisis — but it is also structural: negotiating amendments to avoid imbalanced clauses, channelling franchisees' ideas for improving profitability, and holding the franchisor to account over advertising expenditure. Founders have every interest in drafting statutes and appointing a bureau; an association of fact carries far less weight than a declared "loi 1901" association endowed with legal personality.

Freedom to associate — and not to join — for organised franchisees in France

The requirement of consent to the contract of association is reinforced by the principle of freedom of association, whose constitutional value has been recognised by the Conseil constitutionnel. That freedom implies the freedom not to join. The Cour de cassation, sitting in plenary session, has held that, save in the cases where the law provides otherwise, no one is bound to join an association governed by the loi of 1 July 1901 or, having joined, to remain a member. This is a foundation stone of collective relations in a French franchise: membership of any franchisee grouping is always voluntary.

Two consequences follow. First, a clause in a commercial lease obliging the tenant to join a merchants' association and to maintain that membership for the term of the lease is void; the landlord must restore the dues unduly paid by the tenant forced to join, subject to account being taken of the services the association actually rendered. Second, every member is free not only to join but to withdraw. The right of withdrawal is a corollary of freedom of association and is enshrined in Article 4 of the loi of 1 July 1901, which provides, since the law of 22 March 2012, that any member may withdraw at any time, after payment of the dues due and those for the current year, notwithstanding any clause to the contrary. No exit indemnity may be imposed on the withdrawing member beyond those sums.

Admission may nonetheless be structured. An association may condition affiliation on the approval of a designated organ and on objective conditions — a franchisee association may, for instance, be reserved to signatories of a franchise contract — provided it commits no unlawful discrimination and does not become the spearhead of a prohibited concerted practice. An association cannot refuse admission unless it has reserved that right in its statutes, which is a reason to draft them with precision.

Founding a franchisee defence association cannot justify termination

For organised franchisees in France this is the single most important protection: founding or joining a franchisee defence association is a fundamental freedom, and it cannot by itself constitute a fault justifying termination of the franchise contract. The Cour de cassation (Commercial Chamber) has held that the mere fact that the manager of a franchisee company joins and takes part in the creation and running of an association for the defence of franchisees' interests — even an association whose object manifests a certain distrust of the franchisor — is the exercise of a fundamental freedom. A court of appeal that treated such participation as a breach of an essential obligation of a contract concluded intuitu personae, or as an attack on the network's brand image, without establishing in what respect the sole fact of creating and participating in a defence association harmed the network or gravely affected the franchisor's interests, deprives its decision of legal basis.

The practical risk runs the other way. Some franchisors have terminated the contract of the franchisee who drives the association, advancing a manufactured grievance to make an example and to warn the others into silence. French courts have not been fooled: they have found the termination to be at the franchisor's exclusive fault where they were persuaded that the real motive for the rupture was the franchisee's role in creating and running a franchisee defence association. Such conduct is treated as a grave disloyalty on the franchisor's part.

Standing to strike an imbalanced clause: Article L 442-4 and organised franchisees

Collective relations in a French franchise are not only defensive; the law itself opens rich possibilities of action. Article L 442-4 of the Commercial Code allows any person justifying an interest to seek the cessation of the practices set out in Articles L 442-1 and the following articles of the same code. This permits a franchisee association to ask a court to declare unwritten a clause that creates a significant imbalance (déséquilibre significatif) in the parties' rights and obligations, or that grants a manifestly excessive advantage to the franchisor. The individual imbalance affecting the relationship between the franchisor and each of its franchisees at the moment of contracting thus finds a collective counterweight.

Standing is generous more broadly. In civil matters, an association may act to defend an interest of its own — where it personally suffers a loss — but there is no real difficulty either when it defends the interest of its members or even collective interests, provided their defence falls within its statutory object. The threat of a group action or of an "Americanisation" of the law is not an answer: nothing forbids an association from representing several of its members in court, so long as each has given a regularly established individual mandate for a precise action conforming to the association's object. Where the association is properly declared and its statutes designate who may act on its behalf, it can bring these claims in its own name.

Retail cooperatives in France: an alternative model for organised franchisees

The cooperative is the second technique, and it changes the very spirit of the grouping. Where the classic franchise rests on a pyramidal model in which norms are fixed authoritatively from the top, franchisee members of a cooperative participate directly in the decisions of their franchisor. For organised franchisees in France the cooperative is not a defensive add-on but a structural choice. Article 1 of the statute of 10 September 1947 (loi n° 47-1775) defines a cooperative as a company constituted by several persons voluntarily united to satisfy their economic or social needs by their common effort and the provision of the necessary means. It rests on cardinal principles: voluntary and open membership, democratic governance, economic participation of members, their training, and cooperation with other cooperatives — with the rule that each member has one vote at the general assembly. This is the "one member, one vote" logic, which the Commercial Code carries into the retail cooperative's assemblies.

Read in that light, Articles L 124-1 et seq. of the Commercial Code govern retail merchant cooperatives (sociétés coopératives de commerçants détaillants), whose object is to improve, by the common effort of their associates, the conditions in which those associates carry on their commercial activity. Article L 124-1 gives a broad, indicative list of activities: supplying goods and equipment, pooling premises, facilitating access to financing, providing technical and accounting assistance, and defining and implementing a common commercial policy — including through a shared banner or mark, common promotional operations, common purchasing and merchandising methods, and the operation of an online sales platform.

Associated cooperative commerce (commerce coopératif associé) is a form of network commerce that groups independent merchants under a common banner and is organised as a retail merchant cooperative in more than 90% of cases. Each independent merchant joins by becoming an associate of the grouping and thereby a co-decider of the banner's strategy, set out in the statutes and internal rules; a separate contract — which may itself be a franchise contract — usually completes those rules on supply, communication, use of the mark and protection of the know-how. In exchange, each adherent pays one or more subscriptions and undertakes to source in whole or in part from the grouping. The model reached €150.3 billion of turnover in France in 2016, more than 30% of retail commerce, across 180 national banners and 97 groupings, uniting 32,590 associated entrepreneurs employing 546,769 people in 45,245 points of sale.

Pre-contractual disclosure where cooperators are under quasi-exclusivity

A common trap in the cooperative route concerns disclosure. No provision specific to retail merchant cooperatives imposes a special pre-contractual information duty on the grouping. But that is not the end of the matter for organised franchisees in France. Where a cooperative places a trade name, a mark or a banner at its adherents' disposal and requires from them an undertaking of exclusivity or quasi-exclusivity for the exercise of their activity, it must, before signing any contract concluded in the parties' common interest, provide sincere information enabling the other party to commit with full knowledge. The Cour de cassation (Commercial Chamber) has held that Article L 330-3 of the Commercial Code applies where the adherents of a retail cooperative are, for the products covered by the agreement, held to quasi-exclusivity, and this is so even though they retain the possibility of exploiting non-competing activities.

The disclosure document (document d'information précontractuelle, or DIP), whose content is fixed by Article R 330-1 of the Commercial Code, must be delivered at least 20 days before signature. It states, among other things, the age and experience of the business, the state and development prospects of the market concerned, the size of the network of operators, and the duration, renewal, termination and assignment conditions of the contract, together with the scope of the exclusivities. Where the cooperative contract combines the provision of distinctive signs, the transmission of know-how and continuing assistance, it qualifies as a franchise, and the whole body of franchise rules — including on error as to the profitability of the concept — applies to it.

Association vs cooperative: two routes for organised franchisees in France

Both techniques organise collective relations in a French franchise, but they answer different needs. The association is a contractual counterweight bolted onto a vertical relationship; it leaves the franchise structure and ownership untouched and gives franchisees a voice and, where needed, standing to sue. The cooperative goes further: it imbricates the qualities of franchisor and franchisee, making the members co-owners and co-deciders of the grouping, at the price of a binding activity undertaking, frequent quasi-exclusivity, and a more constraining exit and exclusion regime.

The choice is rarely either/or. A cooperative can house a network whose commercial strategies are the same as any other, and a defence association can be founded within a cooperative or a classic franchise alike. What matters is to align the technique with the degree of collective control the franchisees actually seek, and to draft the statutes, internal rules and any completing contract accordingly.

Network dialogue and the franchisor's disciplinary and innovation powers

Collective relations in a French franchise also run through the ordinary channels of dialogue and discipline. The space of dialogue instituted by law is extremely limited. A short-lived provision sought to impose a network-wide social-dialogue body on franchise networks of a certain size, presided over by the franchisor; the mechanism was heavy and ill-suited — the franchisor is not the employer of independent franchisees' staff — and it was repealed by the law of 29 March 2018. Dialogue is therefore mainly organised by contract: annual conventions, proposal clauses that let franchisees suggest new suppliers where the referenced ones prove less competitive, and, most usefully, a charter concluded between the franchisor and a franchisee association to structure information, opinion and consultation on a sound footing. The reform of contract law by the ordinance of 10 February 2016 also widened the space for renegotiation of ongoing contracts, notably through hardship: Article 1195 of the Civil Code allows a party faced with a change of circumstances unforeseeable at conclusion, rendering performance excessively onerous, to request renegotiation.

Because the franchisor must animate the network it has created, it holds real powers, at two ends. It has policing powers, to ensure that each franchisee applies the transmitted know-how — the recourse to mystery shoppers is lawful in itself, provided they behave as genuine customers and do not push the franchisee into fault, and hygiene-laboratory clauses are practically standard in restaurant franchising. It also holds innovation powers, to adapt the concept to economic, sociological and cultural change — imposing a change of graphic charter or of the loyalty system, for instance.

Those powers are finalised and controlled. Under the finality control, the franchisor abuses its right where, under cover of an evolution of its concept, it seeks to impose an amendment that alters the overall economy of the contract. Under the proportionality control, even a legitimate motive does not suffice: the measure must be proportionate to the franchisee's interests. French courts have restrained a franchisor that, under cover of changing the network's IT hardware, tried to secure control over a franchisee's customer file, treating the operation as a modification of the contract's economy and a manifestly unlawful disturbance. The franchisor's powers are matched by duties of coherence, of promotion of the concept, and of homogeneity — franchisees, and the franchisor's own branches and subsidiaries, must be treated alike absent an objective reason.

Frequently asked questions about franchisee associations and cooperatives in France

Does a French franchise network have its own legal personality?

No. The network has no legal personality of its own; it has no organ capable of collective expression and no one who represents it. It is at most a centre of interests. French law nonetheless takes account of its reality in competition law, in the law of obligations and through the opposability of contracts to third parties.

Can a franchisor forbid its franchisees from forming an association?

No. Founding or joining a franchisee defence association is a fundamental freedom. The Cour de cassation has held that the mere fact of creating or taking part in such an association cannot, by itself, constitute a fault justifying termination of the franchise contract.

Can a franchisee be forced to join a franchisee association?

No. Freedom of association implies the freedom not to join. A clause obliging a merchant to join and remain in an association is void, and dues paid under such a compulsion are recoverable, subject to account for services actually rendered.

Can a franchisee leave the association?

Yes. Article 4 of the loi of 1 July 1901 allows any member to withdraw at any time, after paying the dues due and those for the current year, notwithstanding any clause to the contrary. No exit indemnity may be imposed beyond those sums.

Can a franchisee association challenge an unfair clause in the franchise contract?

Yes. Article L 442-4 of the Commercial Code lets any person with an interest seek cessation of the practices in Articles L 442-1 and following. A franchisee association can therefore ask a court to declare unwritten a clause creating a significant imbalance or granting a manifestly excessive advantage to the franchisor.

What is the difference between a franchisee association and a retail cooperative?

An association is a non-profit contractual counter-power that leaves the franchise structure untouched. A retail cooperative, governed by the statute of 10 September 1947 and Articles L 124-1 et seq. of the Commercial Code, is a company in which members are co-owners and co-deciders on a "one member, one vote" basis, in exchange for a binding activity undertaking.

Does a cooperative owe pre-contractual disclosure?

Where the cooperative provides a name, mark or banner and requires exclusivity or quasi-exclusivity, Article L 330-3 of the Commercial Code applies: the disclosure document must be delivered at least 20 days before signature, even though members may exploit non-competing activities.

Is there a statutory dialogue body for franchise networks in France?

No longer. The attempt to impose a network-wide social-dialogue body was repealed by the law of 29 March 2018. Dialogue is now organised mainly by contract — annual conventions, proposal clauses and a charter between the franchisor and a franchisee association.

Key takeaways on franchisee associations and cooperatives in France

How our French lawyers can help with franchisee associations and cooperatives in France

We advise foreign brands and franchisees on the whole collective dimension of a French franchise network. For franchisees, we form and declare a franchisee association under the loi of 1 July 1901, draft its statutes and internal rules, secure its standing to act, and, where the model is a retail cooperative, review the cooperator's activity undertaking, the exclusivity clauses and the disclosure owed under Article L 330-3. For franchisors, we structure lawful dialogue, charters and disciplinary and innovation clauses that hold up under the finality and proportionality controls, and we defend against — or bring — claims under Article L 442-4 to strike or preserve contested clauses.

This article is for general information only. It does not constitute legal advice. The formation and functioning of franchisee associations and cooperatives, and the exercise of the franchisor's powers, turn on the specific statutes, contracts and facts of each network. Contact our French lawyers for qualified advice before forming a grouping, negotiating a charter, or acting on a contested clause.