FRANCHISEE 101: A Sweet Non-Compete

Lewitt Hackman

A Florida federal court held that the non-compete provision in a chocolate shop franchise agreement was enforceable against an ex-franchisee operating a competing chocolate store at the former franchised location.

The franchisee was terminated for refusing to install the new point of sale system, which was required by the franchise agreement. After termination, the former franchisee continued to operate in the same location.

The franchisor sued to enforce the non-compete provision in the franchise agreement. The non-compete prohibited the former franchisee from operating a competing business within 25 miles of its former location or other franchised locations for two years.

The former franchisee argued that the non-compete provision was unenforceable under Florida law, claiming the franchisor failed to prove a legitimate business interest justifying the provision. The court was not persuaded. It found the franchisor had legitimate business interests in protecting its goodwill in the region surrounding the location and in protecting its ability to sell new franchises. The court concluded that the franchisor's interest in re-entering the market and efforts to bolster the goodwill associated with the franchisor's brand in the area of the franchisee's former location were legitimate business interests for enforcing the non-compete provision.

A franchisee leaving a franchise system should evaluate its legal rights before deciding to operate a competing business. A non-compete provision may or may not be enforceable in the state where the franchisee plans to operate. Knowing the enforceability of non-compete provisions in the franchisee's jurisdiction before operating a competing business can save time, money and headache.

Peterbrooke Franchising of America, LLC v. Miami Chocolates, LLC, S.D. Fla.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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