Consumer Law, Warranties Non Competition Franchisee

[Gerry_Matthews]

I recently had to close my store and my franchisor will not let any member of my family operate the same type of business under a clause in our agreement of non-competition. They were offered in writing to take over the store as a coporate and refused. They are not intending on opening any store in the area and the closest is over 100klm away. I have the lease under my name and that was done at their request in writing just weeks before they contacted me and told me that they were cancelling my franchise agreement. Worst case if we open an independant, same type of business, what can they do?

 

[Michael Wechsler]

I haven't seen the agreement so I can't answer the question. Your answer is very likely in the writing. With regard to your family, if other family members were not a party to this contract and open up a store (not you) then I'm not sure if the company can have grounds to sue them. With regards to you, it seems the writing is clear.

 

[Gerry_Matthews]

Thank you. The writing is just that, that I cannot obtain employment or operate or be involved in the operation of any store with similar merchandising for a period of 18 months.

What I do not understand is that if the franchisor does not have an operation in the city, is not intending on opening up an operation in the city, refused to re-open the existing operation that I closed in the same spot that my store was then how can the franchisor enforce a non competition contract.

I would think that a non competition contract is just that. That an ex-franchisee opening up a similar business will create competition with the franchisor. How is it possible to be in competition if there is no competition. If they were able to stop me then the non competition clause would actually be a monopoly clause. They are claiming that they can stop me from working even though they have no intention of ever coming to the area.

Would the courts view this as unfair or can the franchisor actually claim an area, city etc. even if they are not or do not have any stores near the vicinity?

This does not make sense.

 

[Michael Wechsler]

1) Typically 18 months is unenforceable. Most non-compete agreements will try to stick in a savings clause that it's "x months or whatever the maximum the law allows."

2) Just because the employer doesn't have a current business interest in the city in the non-compete at that moment doesn't mean that there aren't plans underway to make such an investment. If the terms are unreasonable, and it sounds like they may be given the 18 months, it's possible that they are overly harsh and unenforceable as written.

It's difficult to say what the courts will say. They are supposed to enforce the person's rights to have reasonable employment first before protecting the corporation's potential contract rights in a non-compete. You need to have this agreement reviewed professionally.

 

[Gerry_Matthews]

Thank you for your input. It is very much appreciated.
Cheers!