A Tennessee federal judge granted a preliminary injunction in favor of AmeriSpec, a national franchisor of property inspection services, enforcing a one-year post-termination covenant not to compete against its former franchisee.

The franchise agreement expired May 1, 2017. The franchisee did not sign a new franchise agreement or notify AmeriSpec of any intent not to renew. After expiration, the franchisee continued to operate using AmeriSpec’s trademarks and business systems and continued to pay franchise fees to AmeriSpec.

In February, 2018, the franchisee opened a competing inspection business, advertising that “Your Local AmeriSpec is now American Property Inspections.” AmeriSpec then wrote to the franchisee, complaining that he was violating the agreement’s non-compete clause, demanding that he stop operating the competing business and providing him thirty days to cure. After the franchisee did not respond to the letter, AmeriSpec sued.

The franchisee argued that the franchise agreement expired May 1, 2017, meaning the one year post-term non-compete expired May 1, 2018 and was no longer enforceable. The court rejected this argument, finding that the parties operated under the franchise agreement or an implied contract with the same terms, until April 7, 2018 – thirty days after AmeriSpec wrote to the franchisee. The court found no evidence of the franchisee communicating intent not to renew the franchise to AmeriSpec. The court concluded that the parties created an implied contract based on conduct, that the non-compete covenant was enforceable and AmeriSpec would be irreparably harmed without injunctive relief.

Franchisees considering operating a competing business should pay close attention to the non-compete provisions of their franchise agreements and should consult their legal counsel about the implication of such provisions before starting such an endeavor.

Amerispec, L.L.C. v. Omni Enters., Inc., 2018 WL 2248459 (W.D. Tenn. May 16, 2018)