DENMARK Law and Practice Contributed by: Dan Bjerg Geary, Rasmus Otterstrøm Helleland Boisen and Laura Sloth Olesen, Bech-Bruun
The Risk of the Franchisee Being Deemed a Commercial Agent of the Franchisor Under the Commercial Agents Act, a commercial agent is defined as an independent business operator that has formed a contractual relationship with anoth - er company – known as the principal – to promote the sale of the principal’s goods by negotiating the sale of the goods or by entering into sales agreements in the name of the principal. The commercial agent actively seeks out potential buyers and obtains quotations on behalf of the principal. In contrast, a franchisee typically functions as an inde - pendent distributor, purchasing products and selling them under their own name and on their own account. Therefore, the risk that a typical franchisee would be deemed a commercial agent of the franchisor is low. Despite this distinction, there are scenarios where a franchisee might be perceived as acting as a com - mercial agent for the franchisor. Therefore, it is advisable for the franchise agreement to contain clear provisions that explicitly state that the franchisee does not act as a commercial agent for the franchisor. 5.3 Termination of the Franchise Agreement There are no restrictions on the termination rights of the franchisor, and Danish law does not grant statu - tory termination rights to the franchisee. The principle of freedom of contract entitles the franchisor and the franchisee to mutually agree on the terms and conditions regarding termination of the franchise agreement, including the rights to ter - minate and the notice periods required. Danish law does not impose specific statutory termination rights that automatically supersede the agreed contractual terms. This means that the parties have the flexibility to negotiate and define their own termination provi - sions. If the franchise agreement lacks a specified notice period for termination for convenience, and if the franchise agreement does not explicitly state that it is non-terminable, termination for convenience requires a reasonable notice period. The determination of what constitutes a reasonable notice period depends on
franchise agreement itself. While the franchisee can request the renewal of the agreement, the franchisor retains the discretion to decline such a request. Dan - ish law does not impose any obligation on franchisors to extend or renew a franchise agreement that is about to expire or has expired. Compensation Upon Non-Renewal Danish law does not entitle the franchisee to receive compensation if the franchise agreement is not renewed, expires or is rightfully terminated. Com - pensation to the franchisee is only applicable if it is explicitly mentioned within the franchise agreement. However, there are scenarios where compensation might be considered relevant. For instance, compen - sation may be warranted if the franchise agreement includes provisions for compensation under certain conditions (such as when the franchisee has made significant investments that have not yet fully depreci - ated) or if the franchisor is in breach of the terms of the agreement. In summary, the renewal of franchise agreements and the entitlement to compensation upon non-renewal are governed by the terms set forth in the franchise agreement and not by statutory laws. Goodwill Compensation Under Commercial Agency Laws According to the Danish Commercial Agents Act, a commercial agent is entitled to goodwill compensa - tion upon termination of the agency agreement, pro - vided that the following conditions are met: • the agreement is terminated by the principal; • the agent has established a customer base from which the principal can benefit even after the col - laboration with the agent has ended; and • payment of compensation can be considered reasonable. However, there may be specific circumstances that result in the commercial agent not being entitled to goodwill compensation.
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