In my last two articles (read part one and part two here), I discussed some concepts related to exiting a franchise system. In this post, I will continue by discussing what are commonly known as non-compete agreements.
Non-Compete Agreements. Non-compete agreements are contained in most franchise agreements. As with non-solicitation agreements, they may be found in the franchise agreement itself, but are more often contained in a stand-alone addendum or attachment to the franchise agreement. Non-compete agreements are drafted to prevent franchisees from competing with the franchised system. Most non-competes prevent their franchisees from competing during the term of the franchise agreement. This makes sense because it is detrimental for franchisees to compete with themselves and their system.
However, most non-competes also prevent a franchisee from competing upon exiting the system for any reason, including after termination or the natural expiration of the franchise agreement. Non-competes can be particularly damaging to a business person. As such, franchisees must fully understand what will be expected of them at the end of the relationship. This is especially true of franchisees who were already operating a business similar to the franchised business prior to joining the system. Franchisees also should remember that franchise agreements are lengthy, and a lot can happen in ten years. If a franchised system expands its services and products during the franchised term, the scope of a non-compete might be much greater than when the franchise agreement was signed. For this reason, franchisees must understand how their non-competes are worded and what the effects are.
In my next article, I will discuss trade secrets, and how they can impact a franchisee’s exit from the franchised system.
If you have any questions on this or any other franchise related topic, contact me ator 301.575.0345.
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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