Franchise agreements usually contain provisions that prohibit the franchisee from competing in the same business for a period of time after the termination of the franchise. The purpose of these “covenants not to compete” is to prevent franchisees from closing up business as a franchisee and reopening the next day as an independent.
The legal rules concerning covenants are slippery, as shown in two recent cases.
In one case, a Meineke franchisee was terminated by the franchisor for failing to pay fees, but continued to operate. Meineke brought suit and obtained a court order requiring the franchisee to stop operating its business. The franchisee ignored the order and mentioned to a customer that “corporate can’t do anything.” At that, the Court ordered the franchisee arrested and sent to prison! After spending some time in the klink, the Court found that the franchisee had made “substantial strides” in complying with its orders and released it.
In the other case, a Maaco franchisee’s agreement expired and it established another body shop in an area not far from its old shop. Maaco went after it for violation of the non-compete, but the franchisee showed that its new shop differed substantially from the old shop and that it was in a location that did not compete with any Maaco franchisee. As a result, the Court denied Maaco’s request to stop the franchisee from doing business. And what was special about this case is – the franchisee acted as his own lawyer and won!
We can’t advise you to act as your own lawyer. Even we wouldn’t act as our own lawyers! However, we’ve freed many, many franchisees from their non-competes. If you have an issue and want to get out of your franchise agreement, just let us know, and we’ll be happy to give you a free consultation.