Happy Thanksgiving. As a thank you to our valued readers, we are pleased to announce the webinar “Enforcing Non-Compete Provisions in Franchise Agreements” is now available as a podcast and webinar recording.
In Seyfarth’s ninth and final installment in its series of Trade Secrets Webinars, Seyfarth attorneys John Skelton, Erik Weibust and Anne Dunne focused on how to implement and enforce covenants against competition in the franchise context. A franchisor’s trade secrets, confidential information, and goodwill are often among its core assets, and implementing and enforcing covenants against competition are a common, and effective, means of protecting such business interests.
As a conclusion to this well-received webinar, we compiled a list of key takeaway points, which are listed below.
- For Franchisors, non-compete provisions, especially post-termination restrictive covenants, are an important part of the franchise relationship because franchisees are given access to a franchisor’s confidential information and trade secrets and upon the termination, expiration or non-renewal of the franchise agreements, franchisors have a vested interest in preventing the use of such information in a competitive business and in protecting the integrity of the franchise network and their goodwill.
- The enforceability of non-compete provisions are most often litigated in the context of a request for a preliminary injunction and thus franchisors need to be able present evidence to establish (1) all of the necessary elements, especially that the franchisor will suffer irreparable harm to its legitimate business interests and good will if the franchisee violates the terms of the agreed upon non-compete, and (2) that the restrictions are reasonable in time and scope.
- The enforceability of non-compete provisions varies significantly by state and thus national franchisors must ensure that restrictive covenants are drafted to comply with the various definitions of legitimate business interests and protected goodwill and the different Blue Pencil, Red Pencil and Reformation rules.