My franchise agreement has been terminated can I start a rival business?
“I wonder if you can advise I have just had my franchise agreement terminated citing breach of franchise agreement. I do not agree that I have breached it, but do not have the legal fees to fight it. “Part of the agreement was a restrictive covenant on both me and my spouse who was not a signatory to the franchise agreement and the franchise agreement is only in my name. Would this be enforceable under UK Law?”
AnswerThank you for your question. Without a some more details, I can’t give any definitive advice here so Im going to make some assumptions and give some general advice. The first assumption is that the restrictive covenant is included in the agreement to prevent you from setting up a competing business after the franchise agreement has been terminated. However, it could just be a restriction to prevent you from using any confusingly similar branding or the franchisor’s business system in your own business. As explained in a previous article (When are non-compete clauses enforceable), to be enforceable, restrictive covenants must fulfil three criteria.
- There must be a legitimate business interest to protect
- The restrictions must be no wider than is necessary to protect that legitimate interest
- They must not be contrary to public policy (i.e., would the customers of the business be unduly affected if the restrictions were enforced?)
Can a non-compete clause protect the exclusivity of our product? David Walker responds to one reader considering buying out a small caf? business, but has concerns over how its sellers could compromise the exclusivity of its flagship product __________________________________________________________________________________