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Turning an (Occasional) Blind Eye: Selective Enforcement of Franchisee Post-Term Non-Compete Covenants

Franchise Law Journal
18 December 2017

Post-term non-compete covenants barring former franchisees from operating competing businesses are common in franchise agreements. As discussed in prior Franchise Law Journal articles, such restrictive covenants are enforceable in many circumstances.1 Just because a franchisor can seek to enforce its post-term covenants not to compete against former franchisees that are operating competing businesses, does that mean a franchisor must do so? Like any business, franchisors prefer the flexibility to decide which legal claims to pursue, including whether to prosecute post-term noncompete actions against specific former franchisees. However, a franchisor’s failure to consistently enforce its non-compete covenants could jeopardize future enforcement efforts.

This article explores a franchisor’s obligation, if any, to enforce non-compete covenants against former franchisees and the implications of selective enforcement of such covenants. Part I summarizes the general law regarding the enforceability of covenants not to compete in franchise agreements.

Part II analyzes whether a franchisor has an obligation to enforce its posttermnon-competes against former franchisees that open competing businesses. Absent contractual language requiring a franchisor to take action to protect the system from competition, a franchisor generally cannot be compelled to sue former franchises for non-compete violations.

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1. See, e.g., Barbara A. Bagdon & Mary M. Kellerman, When Will Courts Issue Preliminary Injunctions to Enforce Restrictive Covenants in Franchise Agreements, 28 FRANCHISE L.J. 141 (2009); Peter J. Klarfeld & Mark S. VanderBroek, Law on Covenants Against Competition Shifts Toward Greater Enforceability by Franchisors, 31 FRANCHISE L.J. 76 (2011).