Non-Compete Clauses and Franchising
/You have your own franchise now, it's going well, but inevitably you're going to have some issues as you expand and grow your brand, which, of course, is tied to the brand of the franchisor.
There are certain limits as to what you can do and your non-compete clause (restrictive covenant) with the franchisor will dictate much of what you can and can't do.
Some key components are:
The agreements are generally enforceable in New York if the covenant:
Is reasonable in its time, scope, geography (usually best to set limits in the agreement)
Protects the “business interests” of the franchisor (after all, it's their business)
No unreasonable burden on the franchisee
Now, as we all know, reasonableness is both subjective and objective, but a franchisee must protect a franchisor from unfair competition (such as use of trade secrets or information that gives a franchisee a competitive advantage over the the franchisor. Also, a franchisor's good name, knowledge, and reputation must be protected. The franchisor conducts business under a much larger umbrella than your one franchise, and all that work and input from the franchisor has a value that must not be tarnished by your activities. A franchisee also represents the localized "face" of the franchise in a given territory, so it must not do anything to endanger the franchisor's interests there.
Franchises are governed by state laws and regulations, Federal laws and regulations (such as the Franchise Rule promulgated by the Federal Trade Commission), and by contracts. When entrepreneurs set out to pursue their dreams of starting up their own business, they often have a sunny outlook about their chances of success. Nonetheless, business relationships can sour quickly, and a franchisee takes a huge risk if those restrictive covenants are ignored.
Related: You're Opening A Restaurant In NY and Need to Talk to a Lawyer...