A non-compete clause is a provision in a franchise agreement where one party agrees to not compete with the other party during and after the term of the franchise agreement and is usually drafted by a franchisor lawyer. If a franchisee opens a location of one franchised business, they should not be able to open another franchise in the same territory under a competing brand. If you are undergoing a franchise non-compete dispute in North Carolina, our skilled legal team may be able to help. Our attorneys have litigated non-compete disputes in state and federal court in North Carolina, and some of the most recent case law exists due to our attorneys’ litigation efforts. A strong legal defense may be necessary to giving your business a fair chance to expand, and your franchisees should be loyal to your shared vision and profits.
The main topics that are outlined in a non-compete clause are time, territory, and the type of work prohibited. These clauses will always include a provision for a period of time during which the one party cannot compete against the other. This time period must be reasonable to both parties and is often regulated at the state level.
In North Carolina, two years is generally considered a reasonable period of time for a non-compete clause to remain in effect. However, under different types of agreements such as franchise agreements, courts may be reluctant to impose a standard time period as each case really depends on the specifics of the contract and relationship.
Often, there is a specific territory or geographic description of where one party cannot compete to ensure that each party has a fair chance for the venture to work. The type of territory must be clearly spelled out in the franchise agreement to be enforceable.
Protecting a franchisor’s brand is the primary reason for requiring a franchise non-compete. In North Carolina, if a franchisor did not have a non-compete clause in their agreement, the franchisee could just buy the franchise, learn trade secrets, and then use them to their own ends with no remedy or protection for the franchisor. Non-compete agreements are a cornerstone of franchising and are what largely allows franchisors to profit off of their ideas and their hard work.
The number one mistake that businesses make in drafting their non-compete clauses is not being specific enough in the terms. If they do not specifically state the time period, the type of work prohibited, and the territory, then their non-compete most likely will not be enforceable. Working with an attorney from the start could ensure that a non-compete clause is comprehensive enough to truly protect a brand and business.
Non-compete disputes most commonly arise when one party blatantly wants to compete against the other party. Some other reasons are just miscommunication or confusion, where the franchisee does not understand what type of work they are prohibited from performing. It might not be intentional that they are in breach of their non-compete agreement, though the damage may still be very real.
When a franchisee violates a non-compete clause, the franchisor must act swiftly and strongly. If the franchisee decides that they are going to continue competing, then the franchisor really needs to take action immediately to preserve their brand and maintain market share in that territory. The first thing that a franchisor should do is talk to their attorney to review the terms of the contract to really see what the extent of the dispute is and explore legal options.
Franchise non-compete disputes in North Carolina happen all the time, and most franchises will face an issue of this type at some point. Our attorneys can help you resolve non-compete disputes by negotiating and working something out with the franchisee or by filing a lawsuit to protect the business that you built. As litigation can be quite costly, having a lawyer review your non-compete agreement from the beginning could be instrumental in preventing conflict in the first place. Call today to schedule a consultation and strengthen your master franchise contract.