In my last article, I started discussing some concepts related to exiting a franchise system. In this post, I will continue by discussing what are commonly known as non-solicitation agreements.
Non-solicitation agreements are contained in many franchise agreements. They may be found in the franchise agreement itself, but are more typically contained in a stand-alone addendum or attachment to the franchise agreement. Not to be confused with non-compete agreements, non-solicitation provisions do exactly what their name suggests – they prevent franchisees from soliciting others. At a minimum, non-solicitation agreements prevent franchisees from soliciting prior customers of the franchised business. But they may also prevent franchisees from soliciting future customers of the business, or from soliciting other employees of the business. Non-solicitation agreements are enforceable in most states, and franchisees must know the scope of these covenants before signing the franchise agreement.
Franchisees who are doing business in the same field or sector prior to signing a franchise agreement must pay particular attention to non-solicitation provisions. Once a franchisee signs a franchise agreement, all of the franchisee’s prior customers may now be considered part of the franchised business. Franchisees who bring an existing customer base to the business must be certain to build additional safeguards into the franchise agreement so that they can continue dealing with their customers if the franchise relationship ends.
Franchisees must also understand that non-solicitation clauses (just like non-competes and other covenants) typically operate regardless of how the franchise relationship ends. Whether the agreement “expires” peacefully, or is terminated for serious defaults, a non-solicitation can prevent a franchisee from speaking to his old customers.
In my next article, I will discuss non-compete agreements.
If you have any questions about this topic or any other franchise law issue, please contact Brian Loffredo at
ABOUT BRIAN LOFFREDO
Brian Loffredo is a commercial litigator with more than seventeen years of experience representing clients in the franchise industry. Brian routinely assists clients during the licensing and franchise/FDD review process, as well as with the resolution of franchise-related disputes, including those involving terminations, territorial disputes, fraud, disclosure/relationship law violations and breaches of contract.
In addition, Brian represents and counsels clients in the construction industry on matters involving litigation, construction defects, licensing and compliance, collections, mechanic’s liens, payment bond and Miller Act claims, contract drafting, and compliance with home improvement laws and other construction industry laws.
Brian also has extensive experience representing financial institutions with workouts, collections and residential / commercial foreclosures.
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