According to freedom of contract which is indicated in the 26th Article of Turkish Code of Obligations, two or more parties are free to engage in an agreement under the limitations that are stated in the law. Although freedom of contract principally allows parties to form contracts that are decided solely by the parties, such freedom is limited by Turkish Code of Obligations, general principles of law and other laws and regulations. Although the body of current law aims to protect the vulnerable side[1]., general principles of law aims to protect personal rights and prohibits contract clauses that infringing party’s personal rights. In this sense, even when both parties are equal especially in a commercial activity such as franchise agreements, parties cannot engage in a commercial agreement that infringes their personal rights disproportionately.

Within this framework franchise agreements that include non-competition clause may infringe one’s personal rights, more specifically the right to work and freedom of enterprise which stated in the 48th Article of 1982 Constitution. If such non-competition clause is extensive and interfering with party’s constitutional rights, it shall be deemed as invalid according to Article 27th of the Turkish Code of Obligations.

Furthermore non-competition clauses shall be examined in the context of competition law, since two undertakings that engage in a horizontal agreement that one agrees to not to compete with other undertaking, which constitutes an infringement to the Article 4 of the Law on the Protection of Competition number 4054. Article 4 prohibits undertakings to engage in a formal or informal agreement to limit the competition.

a. Non-Competition Clause in the Context of Turkish Code of Obligations and Turkish Commercial Code

Non-competition clause is defined in the doctrine as an agreement that extends a noncompetition provision stated in the law, or agreed between parties.

In the Article 48 of the Turkish Constitution dated 1982 states that everyone has freedom to work and execute agreements in any field, similarly Article 27 of the Turkish Code of Obligations sets forth that every agreement is null and void if such agreements are against mandatory provisions of the law, morality, public order, personal rights or has a subject that is impossible to achieve. In Turkish law, although freedom of contract is stated clearly in Turkish Code of Obligations Article 26, the limits of such freedom of contract is set forth in Article 27; in this context a person cannot disproportionally limit his own personal rights that are mentioned in the 48th Article of the Constitution even with his/her consent. In this context, a party who engages with a franchising agreement shall not restrict own rights about freedom of contract disproportionally, including non-competition clauses that prohibit them to enter into competition. This is the principle to interpret the non-competition clauses[2].

Although franchise agreements are not specified in the Turkish Code of Obligations, dominant view in the Turkish legal doctrine suggests that franchise agreements shall be interpreted by analogy with agent’s contract and therefore parties can agree on maximum of 2 years after the end of the such contract. However if non-competition clause is set forth more than two years or set forth unlimitedly, shall be null and void[3]

Furthermore, non-competition clause shall be limited with time, area and consumer group according to the second paragraph of the Article 123. As it is stated before in the context of agent’s contract, the noncompetition clause cannot be established to exceed two years after the end of such contract; similarly the non-competition clause cannot be established without any regional or consumer base limitations. The noncompetition clause can only be executed in the region that is concerning the agreement. Lastly, the non-competition clause can limit the competition according to the subject of such agreement; parties cannot establish a non-competition irrelevant to the subject of the agent’s agreement. In the legal doctrine, such issues are applied to the franchise agreements by comparison.

b. Non-Competition Clause in the Context of Competition Law

Any agreement, decision or act that is restricting, destructing and limiting competition is forbidden and deemed as against the law according to the Protection of Competition Law Number 4054. In this context, unless any exemption communiqué according to the 5th Agreement is not enacted, any agreement that restricts or prohibits competition between persons is deemed invalid. According to the 5th Agreement, if such limitation of agreement would be beneficiary for production and distribution, if the consumer would benefit from it and if competition in the relevant market would not be limited extensively certain agreements or certain group of agreement can be exempted from Article 4. In this context, Article 5th of the Vertical Agreements Communiqué Number 2002/2 shall be taken into consideration. Vertical agreements are executed between different undertakings that operate different levels of a production chain, from processing the raw materials to the distribution to the consumer. Within this framework competition can be restricted with vertical agreements, yet the Competition Board emphasizes the benefiting aspects of vertical agreements in certain occasions and Board exempts vertical agreements with Vertical Agreements Communiqué Number 2002/2. In this sense, franchise agreements are a particular form of vertical agreements in which the buyer uses the know-how and intellectual property rights that belongs to the producer.

According to the Vertical Agreements Communiqué Number 2002/2, noncompetition clause defined as;

“Any direct or indirect obligation that requires buyer not to produce, buy, sell or resale such products or services competing with products or services subjected in the agreement.”

In the agreements that fall under Vertical Agreements Communiqué, the producer cannot impose non-competition requirement that is unlimited or more than 5 years to the buyer. Such exceeding requirement shall be null and void according to 4th Article of the Protection of Competition Law Number 4054 if such obligation is included in the agreement; as it would be considered as an agreement restricting competition[4].

Similarly, non-competition clause cannot exceed the end of the relevant vertical agreements, however according to 5th Article’s sub-paragraph c of the Communiqué, if it is obligatory to protect the know-how, the buyer can be required not to compete with the producer not more than a year.

c. Conclusion

In consideration of explanations that are stated hereabove, although franchise agreements are not included in the present Turkish law, non-competition clauses and requirements that could be established in the such franchise agreements, in compliance with and not consisting an excessive breach to the freedom of labor and enterprise, and in the frame of freedom of contract that is set forth in the 26th Article of the Turkish Code of Obligation and in pursuance of limitations that are stated in the 27th Article. Nevertheless franchise agreements which are not included in present law, yet compared to agent’s agreement; within this framework two years of non-competition clause that shall be limited by region, customer base and with the subject of the agreement can be established according to the Article 123 of the Turkish Code of Commerce. Furthermore, according to Protection of Competition Law 4054 and Vertical Agreements Communiqué Number 2002/2, franchisee cannot be required to not to compete more than five years within the frame of a franchise agreement, and cannot be obliged to not to compete more than one year after the end of the agreement. If such exceeding clause is established, it shall be null and void.

REFERENCES

  • For instance employee is protected from the employer and consumer is protected from seller even though both parties regarded equal in general theory or contracts.
  • Yargıtay 11th Civil Law Chamber. Main. 2016/12111, Decision. 2018/3973, Dat. 28.05.2018 Decision
  • Can, O. “Franchise Sözleşmelerinde Kararlaştırılan Sözleşme Sonrası Rekabet Yasağı Bağlamında Bir Yargıtay Kararının Değerlendirilmesi”. Ankara Barosu Dergisi (2014): 50-67
  • Yargıtay Civil General Assembly, Main. 2010/19-105, Decision. 2010/158, Date. 17.03.2010 Decision. In this decision, an “operatorship agreement” similar to the franchise agreements that was enacted before the aforementioned Communiqué had taken into force, it is accused that the agreement had exceeded 5 years and a penalty was not paid the Court had decided that unlimited non-competition obligations that had executed before, shall continue for 5 years after the Communiqué’s entry to the force and it shall be null and void if it exceeds such term limit.