Turkey: The Board Fines BFIT For Imposing No- Poaching Obligations Upon Gyms Post- Termination Of Franchise Agreements

The Board has published its decision[1] on the preliminary investigation against Bfit Sağlık ve Spor Yatırım ve Tic. A.Ş. ("BFIT") following a complaint by a franchisee based on the allegations that BFIT's franchising agreements included non-compete and no- poaching clauses and violated the Law No. 4054 and the Block Exemption Communiqué on Vertical Agreements ("Communiqué No. 2002/2").

BFIT granted franchisees the right to use its trademark in its franchising agreements in order to open gyms. In these agreements, BFIT imposed a non-compete obligation on its franchisees and their employees during the agreement term, i.e., five (5) years. These agreements also included a non-compete obligation for the period following the termination of the agreement for two (2) years in BFIT's Type 1 agreements and one (1) year in Type 2 agreements.

In addition to non-compete agreements, the franchising agreements included no-poaching clauses stating that "the franchisee cannot employ anyone who has worked or is currently working in BFIT or as a franchisee of BFIT or another competitor without written consent of BFIT". BFIT included these provisions to its franchising agreements in order to be notified in case personnel committed an infamous crime or there is a lawsuit between personnel and franchisee. However, BFIT added that personnel can be transferred between BFIT's centres and they can be employed by competitors if they provide equal or better conditions in spite of no-poaching clauses.

In its reasoned decision, the Board referred to the US Department of Justice's approach to no-poaching agreements. From US competition law perspective, no-poaching agreements deprive the employees of the opportunity to negotiate for better job opportunities and restrict competition in labour markets, which have similar effects with wage-fixing agreements. Wage-fixing agreements between competitors result in the repression of wage increases over the time by restricting employees' ability to find jobs with higher wages and no-poaching agreements indirectly have the same result.

In line with the US approach, the Board found that no-poaching clauses may have indirect effect in labour market, since they result in wage fixing, therefore they should be evaluated under Article 4 of the Law No. 4054[2]. However, the Board stated that if knowhow and innovation are essential in the relevant sectors and the duration of the clauses is reasonable, these agreements may benefit from exemption. Accordingly, the Board concluded that the franchising agreements would be assessed within the scope of block exemption under Communiqué No. 2002/2, since BFIT's market share was below the 40% threshold.

Under Communiqué No. 2002/2, a non-compete obligation may be imposed on the purchaser with regard to the period following the termination of the agreement provided that it does not exceed one year as of the termination of the agreement, with the conditions that (i) the prohibition relates to goods and services in competition with the goods or services which are the subject of the agreement, (ii) it is limited to the facility or land where the purchaser operates during the agreement, and (iii) it is necessary for protecting the know-how transferred by the provider to the purchaser.

The Board stated that non-compete obligations regarding agreement term for five (5) years complied with Communiqué No. 2002/2. However, the non-compete obligations with regard to the period following the termination of agreements do not meet the conditions in Communiqué No. 2002/2, since they are not limited to the facility or land where the purchaser operates during the agreement and Type 1 agreements do not meet the conditions in terms of duration. Therefore, the Board concluded that they cannot benefit from block exemption. In the same vein, the Board stated that no-poaching clauses cannot benefit from the block exemption either.

The Board further conducted an individual exemption analysis for the non-compete and no-poaching clauses. In this analysis, the Board found that franchising agreements restricted competition more than necessary, and thus did not grant individual exemption, since (i) non-compete obligation with regard to the period following the termination of the agreement did not meet the condition in terms of duration and geographic area, and (ii) the scope of the consent of BFIT was unclear.

In addition, the Board evaluated resale price maintenance ("RPM") allegations. It is claimed that BFIT determines the gym services' prices, the franchisees are obliged to obtain written consent from the franchiser for the fees. The Board concluded that BFIT's RPM practices have limited effects in the market, since BFIT started RPM practices very recently and gym services market is competitive with many players.

The Board ultimately decided not to launch an in-depth investigation and instead ordered BFIT to terminate the infringement under Article 9/3 of the Law No. 4054. The Board stated that BFIT has to revise its non-compete and no-poaching clauses in franchising agreements to comply with the Law No. 4054 and Communiqué No. 2002/2 in terms of the duration, geographic area and the scope of written consent. Against this background, The Board stated that BFIT has to remove the non-compete obligation for franchisees' employees for both during the agreement term and with regard to the period following the termination of agreement, and revise the non-compete obligation with regard to the period following termination of an agreement for franchisees in order to be limited to the facility or land, where the franchisee operates during the agreement, and limited to goods or services, which compete with the goods or services subject to the agreement. In addition, the Board indicated that BFIT has to determine the scope of its written consent in the no-poaching clauses and the duration of no-poaching clauses should be limited to the agreement term, and the non-compete obligation with regard to the period following the termination of agreement should be limited to one (1) year in Type 1 agreements. Lastly, the Board stated that the clauses enabling RPM should be amended.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in September 2019. A link to the full Legal Insight Quarterly may be found here

[1] The Board's decision dated February 7, 2019, and numbered 19-06/64-27

[2] The Board's Actors decision dated July 28, 2005 and numbered 05-49/710-195 and the Board's Private schools decision dated March 3, 2011 and numbered 11-12/226-76.

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