If It Looks Like a Duck, Walks Like a Duck, and Quacks Like a Duck: The Enforceability of Noncompetes Against Nonsignatories

04/28/2014

Covenants not to compete (or noncompetes) are routinely used to protect the franchisor from competition both during and after the term of the franchise agreement by a franchisee that has obtained the benefit of the franchisor’s business knowledge and goodwill arising from the franchise relationship. As long as it complies with state restrictions, which usually require that the noncompete covenant be reasonable with respect to scope, time, and geographical limitations, a covenant not to compete is generally enforced against parties to the franchise agreement. In a post-termination covenant not to compete, the franchisee agrees not to utilize the confidential and trade secret knowledge gained or to take advantage of the goodwill developed during the term of the franchise agreement. Post-term noncompetes usually restrict the type of business that the franchisee can operate within a designated geographic area for a specified period of time.

Excerpted from the American Bar Association's Franchise Law Journal, Vol. 33, No. 4, Spring 2014. © 2014 by the American Bar Association. Reproduced with permission. To read the full article, click on the PDF linked below.

PDF - Enforceability of Noncompetes Against Nonsignatories

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