Non-competition clause

Franchise agreements more than once include a non-compete clause with respect to the period after the franchise agreement has been terminated. This period is usually one year after the contract has been terminated and the franchisee concerned must, in short, refrain from activities that are competitive with the activities of the franchise organization during that period. As discussed in this section, for example, such non-compete clauses must comply with various rules. For example, the non-compete clause must fit into the competition law regime in which the franchise organization finds itself, partly depending on its market share.

Furthermore, the non-compete clause must pass the civil law reasonableness test. Each of those topics can fill several contributions like this one. This contribution draws attention to the fact that non-compete clauses must at all times be formulated with the utmost care and that when formulating a non-compete clause, the franchisor must also carefully envision what is intended, in particular which activities exactly during the period after contract termination should be prohibited. Recent case law once again shows that the court interprets a non-compete clause, which incidentally derives from employment law practice, extremely restrictively and, when assessing it, analyzes the clause in a grammatical manner. In general, it is therefore not sufficient to “explain” a non-compete clause, to act “in the spirit” of the provisions of the non-compete clause or the like. If a non-competition clause is to have the intended effect, it will have to be literally grammatically and linguistically determined what is intended by the clause. It is therefore important to make sure of this in advance, in order to avoid unpleasant surprises afterwards.

Ludwig & Van Dam franchise attorneys, franchise legal advice