Franchise Non-Compete Disputes in Georgia

Franchise non-compete disputes in Georgia frequently revolve around the enforceability of the agreement’s terms, particularly their reasonableness with respect to time, geography, and scope. Non-compete agreements protect your proprietary information, including training methods, recipes, and business models.

Our experienced attorneys at Franchise.Law provide comprehensive franchise services and could pursue claims for the misuse of intellectual property, trademarks, and trade secrets in conjunction with the non-compete violation. Our legal team could help you protect your brand’s integrity and deter future non-compliance by other franchisees.

What Are the Primary Reasons for Franchise Non-Compete Disputes?

These disputes typically arise when a franchisor identifies conduct that may violate the non-compete agreement. Key issues that often lead to franchise non-compete violations in Georgia include allegations that the former franchisee:

• Misuse of confidential information: Franchisees must protect the brand’s trade secrets and other confidential information. Misusing this information in a new venture can lead to litigation.
• Client diversion: A franchisor may accuse a franchisee of using customer lists or proprietary information gained from the franchise to steal customers away from the brand after the agreement has ended.
• Operating a competing business: This is the most common reason for a franchisor to file a lawsuit and typically occurs when a former franchisee opens a similar business within a prohibited distance or time frame.
• Employee poaching: Disputes can arise when an ex-franchisee solicits or hires former colleagues or employees, potentially violating non-solicitation clauses intended to protect the franchisor’s network.
• Continued use of trademarks: After a franchise agreement terminates or expires, former franchisees sometimes continue to use the brand’s trademarks or trade dress, which can be a separate cause for legal action.

Our lawyers could help negotiate a settlement with the other party to avoid costly litigation. Franchise.Law, based in Charlotte, NC, represents franchisors nationwide, with a focus on federal franchise law and multi-state compliance. While not licensed to practice Georgia law, we operate under the multi-jurisdictional practice rules, including those that permit representation in matters governed primarily by federal law, such as franchise regulation.

Factors Impacting the Outcome of Franchise Non-Compete Disputes

The Georgia Restrictive Covenants Act (GRCA), under Official Code of Georgia Annotated § 13-8-50, governs the enforceability of non-compete agreements and addresses disputes arising from employment and franchise contracts. A restrictive covenant, such as a non-compete clause in a franchise agreement, must meet several tests to be considered reasonable under the GRCA:

• Time: The duration of the non-compete must be reasonable, following the termination or expiration of the franchise agreement.
• Legitimate business interest: A franchisor must show that the covenant is necessary to protect a legitimate business interest, such as trade secrets, confidential information, or customer relationships. Courts will not enforce a covenant that solely intends to suppress competition.
• Geographic area: The restricted area must be a reasonable scope, defined or determined at the time the agreement is signed. A covenant is likely unenforceable if its uses shifting or expanding terms to describe the territorial restriction, such as a radius around any store in the franchise system, as the franchisee would not know the full extent of the restriction when signing.
• Scope of prohibited activities: The clause must be specific about the business activities the franchisee must not engage in. A non-compete that restricts a franchisee in any capacity for a competitor is overbroad and unenforceable. The restriction must only limit tasks or activities similar to those performed under the franchise agreement.

The GRCA authorizes judges to modify an overly broad non-compete to make it reasonable and enforceable, rather than voiding the entire contract. While this is often favorable to you, it can still lead to disputes over what constitutes a reasonable modification versus what compromises the agreement’s original intent.

A franchise non-compete is more likely to be upheld if it is narrow in scope and protects your legitimate business interest. Because courts can only remove portions of an agreement, not add new terms, you must draft your non-compete clauses carefully. The court will deem a clause unenforceable if it lacks a key element, such as a geographic or time limitation.

Potential Remedies for Franchisors

A valid and enforceable non-compete agreement allows a Georgia franchisor to take legal action to address a breach or dispute. The court may grant injunctive relief by issuing an order prohibiting the franchisee from engaging in the prohibited competitive activities. You may seek monetary damages to recover losses caused by the franchisee’s breach, but you must prove those losses tie directly to the violation. The court may enforce liquidated damages by requiring payment of a reasonable, predetermined amount specified in the franchise agreement.

Many franchise agreements include mandatory alternative dispute resolution clauses that a lawyer could enforce.

Contact Us for Help Navigating Franchise Non-Compete Violations in Georgia

Our lawyers could draft and send a formal cease-and-desist letter notifying the franchisee of the breach, demanding that they cease the prohibited activity. If necessary, we could also file a lawsuit seeking a temporary restraining order or a preliminary injunction to address franchise non-compete disputes in Georgia. Contact Franchise.Law today to request a consultation with our attorneys.