Most franchise agreements contain non-competitors that apply both during and after the end of the franchise relationship. These are important provisions that must be identified and understood before entering into a franchise agreement. Although often a reasonable commitment in exchange for the benefits of a franchise system, competition restrictions are still well worth an independent reflection before signing on the points line. In merry Maids v. Merry Maids franchise, a franchisor of a cleaning services company sued the former franchisee and his wife, claiming that they were both linked to the non-term-restrictive franchise contract when the woman had not signed the franchise agreement. When the franchise agreement expired, the husband gave his wife 10,000 $US to launch his new cleaning service and entrusted him with the assets of the old company. In addition, the woman hired former franchise employees to work for the new store and caught up with former franchise customers. The court prohibited the woman from operating the business after the termination of the franchise agreement. If, for any reason, you are planning to terminate or expire your franchise agreement on the horizon, you should immediately seek the advice of an experienced duty-free lawyer to determine whether the post-term contract is valid, who it would cover and what activities it would prohibit, among other things. Waiting until the contract expires or to get answers to these questions could make the difference between the possibility of earning a living or rather reaching the limits of unemployment.
Even if the non-compete clause in your franchise agreement is fully applicable, you may be able to protect your operating right by negotiating a transaction with your franchisor. Do you have any potential claims against your franchisor that could lead to leverage in settlement negotiations? It can be an effective strategy in the right circumstances and it is an option that should not be overlooked. The general rule of EU competition law is that non-competition obligations must be assessed on a case-by-case basis taking into account the nature of the agreement and the extent of the non-competition obligation. But there are also some rules that apply specifically to franchise agreements. In this context, it is legally inappropriate for so many courts to impose clearly unenforceable non-competition prohibitions and illegal trade restrictions. But that`s what`s happening. Indeed, all resources (i.e. large law firms, large corporate interests, large sums of money) are on the side of non-competition obligations.
Even if an accused has the means to retain serious counsel, he or she is fighting the status quo of the past 30 years. I have seen many cases where courts have imposed competition bans on a large company because the company has been successful in enforcing these agreements in the past. But that is not how the law should work. Just because ABC Co. succeeded in imposing a non-competition clause in 1996 does not mean that the issue of applicability should not have an influence today.