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Can a franchisee work outside their exclusive territory?
The first thing to say is that not all franchise agreements grant a territory, let alone an exclusive territory. For instance, you would not expect a retail-based franchise to have any territory, other than possibly some protection for a franchisee against the franchisor opening or allowing the opening of other outlets too close to the franchisee’s outlet. If an exclusive territory is granted, then inevitably the franchise agreement imposes restrictions on all of its franchisees in respect of areas outside their territory because, otherwise, the franchisee in territory A would be able to operate in territory B, which would, as a result, cease to be exclusive. Unfortunately, things are not as simple as that because competition law does not allow franchisors to prevent franchisees undertaking ‘passive sales’ outside their territory. Active sales can be prohibited, but passive sales cannot. What this means is that franchisees can be prevented from looking for customers outside their territory, but cannot be prevented from responding to unsolicited requests from a customer outside their territory. In other words, exclusive territories are not quite as exclusive as they once were.
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