Our Non-Compete Attorney Will Examine if Your Franchise Agreement is Enforceable 

When you signed your franchise agreement, you almost certainly agreed to a non-compete clause that restricts your ability to operate an independent business after your franchise ends. Non-compete clauses are ubiquitous in franchising; and, although they can serve legitimate business interests for franchisors in some circumstances, franchisors routinely use them to overreach. Without the help of a non-compete attorney, you may not know if your rights are being violated. 

If your franchise agreement has expired (or if your franchise has been terminated) and you are facing a non-compete clause, you should speak with a non-compete lawyer who has experience in challenging the enforceability of these costly contract provisions. With more than three decades of experience exclusively representing franchisees and dealers, non-compete attorney Jeffrey M. Goldstein has helped many franchisees avoid the enforcement of post-termination non-competition covenants. Laws in all 50 states protect franchisees against unreasonable non-compete clauses; and, with a nationwide practice, Mr. Goldstein can help you regardless of where you are trying to start an independent business.

What is a Covenant Not to Compete?

A non-compete clause, also known as a non-competition covenant or a covenant not to compete, is a contract provision that prohibits one party from competing with the other. Within the franchise context, franchisors use non-compete clauses to prevent their franchisees from using what they learn as members of the franchise system to open competing independent (or franchised) businesses post-termination.

Covenants not to compete can be legally enforced. If a covenant not to compete serves a valid business purpose and is reasonable in scope, then it will survive scrutiny under the laws of most states. As a franchisee, you gain access to a significant amount of proprietary information; and, at least theoretically, you should learn a lot about running a successful business. While you pay for the privilege, you are not “buying” this information outright. When your franchise agreement ends, your franchisor has a legitimate interest in ensuring that you do not use what you have learned to compete with its company-owned outlets and other franchisees.

When is a Covenant Not to Compete Unenforceable?

There are several issues that can render a covenant not to compete unenforceable. Different states have different standards, and non-compete attorney Jeffrey Goldstein will need to examine the facts of your particular case to determine if you have grounds to challenge your franchise agreement’s non-compete clause. Generally speaking, however, common grounds for challenging non-compete clauses include:

  • The non-compete covenant prohibits business that is not competitive with the franchise system
  • The non-compete covenant is unreasonably long in duration
  • The non-compete covenant is unnecessarily broad in geographic scope
  • The non-compete covenant prevents you from utilizing your specialized education or training and makes it difficult (if not impossible) for you to earn a living

Noncompete Clauses in Franchise Agreements Must be Reasonable

Putting aside federal antitrust laws, noncompete agreements are evaluated under state, not federal, law. Although some states have passed statutes regarding the reasonableness of CNCs, others rely upon the more fluid common law definition of reasonableness.  In many cases this complex competitive analysis pivots merely off the following: (1) the number of years of the CNC; and (2) the geographic area covered by the CNC.

State laws also differ on whether a court has the power to ‘blue pencil’ or rewrite an overbroad noncompete agreement so that it does not transcend the boundaries of the reasonableness test. Such an ability is detrimental to the interests of franchisees and dealers, to the extent that it allows franchisors and manufacturers to get two bites at the apple on enforcing initially unlawful CNCs.

How to Determine if You Need to Speak with a Non-Compete Lawyer

If you are considering not renewing, terminating, or otherwise ending your relationship with your franchisor or manufacturer, you must consider the impact of this decision on your ability to operate and earn a living after the conclusion of that relationship. To a lesser extent, you should also be concerned about what business activities you are permitted to engage in while you are under contract with the franchisor or manufacturer.

To protect yourself, you must be able to answer the following questions before you terminate, fail to renew, or otherwise end your relationship:

  • Does my franchise, distribution or dealership agreement have an in-term noncompete provision?
  • Does my franchise, distribution or dealership agreement have a post-term noncompete provision?
  • Does relevant state law permit a court to ‘blue pencil’ my noncompete clause?
  • Does the duration clause of my CNC span too many years?
  • Does the geographical scope clause of my CNC cover too much territory?
  • Does the training I received from the franchisor, distributor or manufacturer comprise a trade secret?
  • Am I permitted to keep my franchise business phone number, email address, website, and décor?
  • Am I required to assign my lease to my franchisor or manufacturer after the relationship ends?
  • Does my state have any statutes that prohibit the enforcement of CNCs?
  • Does my CNC prohibit my wife and other family members from engaging in certain specified business activities?
  • Do my future plans involve interacting with customers I previously serviced as a franchisee or dealer?
  • Are my employees also subject to the CNC?
  • Can the franchisor prohibit me under my CNC from operating an independent business in addition to my working for or with other competing franchisors or businesses?

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Experience and Expertise of Goldstein Law Firm in Litigating for or Counseling Clients on Noncompete Agreements

Non-compete lawyer Jeff Goldstein and the Goldstein Law Firm have a long track record of winning lawsuits against franchisors and manufacturers attempting to enforce noncompete agreements against franchisees and dealers. Regarding these successes, the Firm has always relied heavily on its ability to identify and highlight for courts and arbitrators the lack of legitimate business interests proffered by the franchisor allegedly supporting the CNC in dispute. Further, in some cases, the Goldstein Law Firm has succeeded on behalf of its clients by showing that the franchisor should be barred from enforcing a noncompete agreement because of prior wrongdoing by the franchisor during the term of the franchise or dealership relationship, before the franchisor’s attempt to enforce the CNC.

To assist you in answering these, as well as other relevant noncompete agreement questions in the franchise and dealership context please call us for a complimentary consultation with our experienced non-compete attorneys.

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