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Can a franchisor enforce a clause saying I can’t be involved in a similar business up to 12 months a
It is an essential feature of all franchises that franchisees cannot make use of the information, knowledge and assistance that they have received during their franchise agreement to compete with the franchisor on termination of their franchise agreement. There is, however, a limit to a franchisor’s ability to prevent franchisees from competing. Non-compete clauses will only be enforceable in so far as they are reasonable - and it is for a judge to establish whether a clause is reasonable. Unlike the situation in an employment contract, where an employer cannot have protection from competition, franchisors can oblige their ex-franchisees not to compete and, accordingly, all franchisors impose noncompete obligations on their franchisees. Most commonly these obligations last for 12 months within the territory granted to a franchisee. Whilst the enforceability of such provisions will depend on how well they have been drafted, the type of business and the size of the territory, generally such provisions are likely to be enforceable. It is much less likely that post-termination restrictive covenants that last for more than 12 months or extend beyond the territory granted to a franchisee will be enforceable.
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