Q.

What non-competition restrictions are placed on a franchisee once they cease being part of a franchise network?

Author: Shelley Nadler

answered by Shelley Nadler

Legal director at Bird & Bird

Shelley Nadler writes:

It’s usually the case that a franchise agreement will contain provisions that prevent the outgoing franchisee from trading with the customers of the franchisee’s business and from carrying on competing business within the territory in which the franchisee’s business was operated.

On the expiry of the franchise agreement, the franchisor will seek to protect the knowledge the franchisee has acquired of the franchisor’s system and the goodwill generated by the franchisee’s operation of the business under the franchisor’s brand name.

There is also usually a restriction on the outgoing franchisee from carrying on a business that is similar to or which competes with the business of the franchise network in the territory in which the franchisee’s business was operated for a period of one year.

If there’s no territory referred to in the franchise agreement, the non-compete restriction usually applies to a radius from the premises where the franchisee carried on the business.

There is also usually a restriction on outgoing franchisees from soliciting customers of the franchisee’s business for one year after the termination of the franchise agreement, which would apply to customers who were during the period of one or two years prior to such termination regular customers of the franchisee’s business.

Shelley Nadler is a legal director in Bird & Bird’s international franchising team and has many years’ experience of advising on all aspects of franchising.

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