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Start: Tony Wilson

Non-compete clauses rarely hold up in court Add to ...

What if the covenant purported to restrict the former franchisee from being in the “restaurant business?” This generally won't be enforceable either, because there are various kinds of restaurants that an ex-restaurant franchisee can be involved in. And you can't deprive someone from earning a living, especially if the restaurant business is all they know. But if it had said a restaurant business where “50 per cent of food revenue was from the sale of pizza," that might be a bit more troublesome for the former franchisee who wants to open up his own pizza restaurant after her current pizza restaurant franchise ends.

But even if the covenant did describe, with much greater certainty, the kind of business the soon to be ex-franchisee was not to be in for six months, there are other hoops a franchisor or other party enforcing a restrictive covenant has to jump through to obtain an interlocutory injunction to stop the conduct right away. One of them is cost. From the perspective of legal fees alone, injunctions are phenomenally expensive for both parties, but usually more for the party seeking to enforce the covenant. The second issue is the injunction itself, because there are many factors that have to be satisfied before a court will grant such an extraordinary remedy such as an injunction before a trial. The bar is set high because granting the injunction may well decide the outcome of the trial. So the franchisor could spend truckloads of money and still lose.

There are other factors that might come into play, including any inequality of bargaining power between the parties, and whether the person at the receiving end of the injunction obtained independent legal advice before he or she entered the franchise or other contract that contained the restrictive covenant.

So if you're considering signing a franchise agreement that restricts you from being in a “similar business” when the contract ends for five years and 50 miles from your soon-to-be-franchised location, what do you do? Well, see a lawyer, because these are complicated issues, the law is different across Canada, and the facts aren’t always that simple.

But based on the facts I've given you above, I might provide what I call Basil Faulty's Advice. Whatever you do, don't mention the war. Leave it alone. Don’t touch it. Don’t bring it up.

If you let the franchisor know its restrictive covenant is too long in time, too broad in scope or too uncertain, all the franchisor will do will be to fix it to make it more enforceable against you. So just don’t mention it. Besides, if the franchisor drafted it, and the drafting is ambiguous, there's a rule of contractual interpretation that states that the ambiguity will be resolved against the party that wrote the provision. So strike three.

What if I'm the franchisor wanting to stop someone from being in the same business after the franchise agreement ends?

Well, the facts above won't help me, because if the franchisee's lawyer knows his or her law, they'll send me a recent case from the Supreme Court of Canada on non-competition covenants, and politely tell me to jump in a lake. It's over baby. Time to redraft my contract.

So you might “lawyer up” and redraft your covenant to make it more enforceable. Shorten the time period of the restriction. Make the geographic restriction smaller. Define the business more specifically. And you might put in a provision that allows the franchisor to unilaterally reduce the scope of the covenant without consent of the franchisee, just so you can reduce it further if the law changes and you have doubts about its enforceability in five years.

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