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Non Competition Clause In Franchise Agreement

The right approach to franchise competition bans is this: the franchisee pays a lot of money – often millions of dollars – to buy this place on the market. When the franchise relationship is over, the franchisee should be able to do what it wants to do to not continue to assert itself, z.B. a McDonald`s or affiliate (and this is already covered by trademark law). What if the contract ends and the franchisee launches a BurgerFi across the street? Where does unfair competition threaten? I will tell you that they do not exist. It is a vine leaf of the imagination. It came out of the air. The emperor has no clothes. The law is put in place simply because the big franchisors are massive interests and several billion companies. Rather than pretending that the law is logical and morally reasonable, it would be much more honest for everyone to admit the obvious: large franchise companies and their great corporate lawyers play a central role in the power structure. The law is not fair, the law is logically not sound, and none of this makes sense. But that`s the way it is.

That is a problem, but at least such a statement would be honest. I think it is highly unlikely that the courts of the courts of the non-competition clause will adopt my underlying logic. So let`s stick to the traditional test of the legitimate interest of companies. Most franchised competition contracts also fail because of this test. Franchisors often tell me that they want non-competition in their franchise agreement to scare the franchisee, even if the franchisor knows it is unenforceable. It`s not smart. The ca courts have authorized punitive damages against companies that are overly aggressive in the use of a non-compete clause. As a general rule, non-competition clauses can only be agreed for the duration of the contract. Any obligation that goes beyond the duration of the contract excludes the non-compete clause from the scope of the exemption. However, in certain circumstances, non-competition prohibitions may be allowed when the agreement expires.

Where a non-competition obligation is fundamentally important for the maintenance of know-how, it may be agreed for one year, provided that the obligation is limited to the geographical limits of the institution or property executed by the debtor during the term of the contract and provided that the obligation applies only to competing goods and services. However, the use or disclosure of know-how may be limited for an unlimited period of time. The conclusion of all this is that the only legitimate restriction here would be a post-term restriction that prohibited Joe from operating a hamburger seal in exactly the same place. But since McDonald`s probably owns the property, it`s impossible. If Joe goes somewhere else – even literally across the street – and opens a Burger King, I don`t care. This would not threaten McDonald`s confidential information, customer relations or interest in “exceptional” training. Even if Joe opens another burger joint, there is no legitimate commercial interest and there is no real danger of unfair competition.

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