Question

Do non-compete contracts apply to ALL franchise locations?

If I signed a non-compete contract for a franchise in "Town A", is it a breach of contract to move to "Town B" and start up a similar business to compete against a completely different franchise? In the contract it said for up to a year I could not compete with the franchise, but I don't know if that only legally means the one in the specific town that I signed it for or for ANY franchise that they own?
I was trying to nonchalant about the specifics of the corporation or the terms of the agreement, but I think it would be best to include them to hammer out a definite answer.

The most important aspects of the agreement read like this:

This NON-COMPETITION AGREEMENT (the "Agreement") is made and entered into effective the day of XX/XX/2013 by and between McDonalds (the "Company") and (insert my name here) ("Employee").

......

Employee agrees that, during employment and for one year following termination of employment with the Company, Employee will not, directly or indirectly, render services to or become associated with, whether as an owner, employee, independent contractor, manager, consultant or otherwise, any person or entity that produces, markets or sells a Competitive Product within the Company's Market Area. For purposes of this Agreement, the Company's Market Area consists of the area within a twenty mile straight-line radius of any Com

1 year ago - 1 answers

Best Answer

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There are a couple things to note here.

First, I assume you are speaking of a fast food restaurant, or similar type of business where there is a "parent" brand/company, but many (if not all) of the locations are owned by franchisees. For instance, McDonalds. Almost every McDonalds restaurant out there is owned by a franchisee, not McDonalds Corporation. These franchisees are their own entity and they license the name/food products/characters from the parent in exchange for a royalty fee and other fees. These companies can have any name they want, but for this example, lets use McDonalds Corp as the parent, McDonalds Franchisee 1 as an owner of 10 restaurants, and McDonalds Franchisee 2 as an owner of 20 restaurants.

Second, it really depends on the exact language of your non-compete agreement. If your agreement was with a specific franchisee, then you cannot compete with that company. For instance, if you work for a McDonalds franchise owned by McDonalds Franchisee 1, and it is located in Anywhere, California, then you cannot compete with any other restaurant owned by McDonalds Franchisee 1. You can, however, most likely compete with a McDonalds owned by McDonalds Franchisee 2.

You also must read your non-compete to see if it specifies a geographic area to define the word "compete". It is unrealistic to expect you to not open a restaurant in Maryland if the franchisee you worked for only operates in California. Your non compete probably have a geographic area (such as within 50 miles, within the same county, etc). If you open your restaurant outside of this area, you are fine and not considered "in competition".

The hardest part of non-compete agreements is to determine what is a reasonable geographic area. For a fast food type restaurant, the geographic area is going to be rather small (maybe 10 miles, most likely a lot less) because there is a McDonalds about every mile in some cities.

In your case, it appears you are asking if you can open a franchise in a different town. You don't say whether it is a franchise of the same brand, or just the same industry. You need to review your non compete to determine if it is limited to the same brand, or to the same industry. You also need to review it to see if it defines the geographic area that is to be protected against competition. If Town B is outside that area, you are fine.

If none of that helps, I would highly recommend consulting an attorney on the matter. Most attorneys will review the document in an initial consultation with you a no charge. Even if they do charge, it will be a minimal cost versus getting sued for breaking your agreement.

1 year ago