A new development facing franchisors is the specter of spouses, brothers, sisters and cousins of franchisees suddenly appearing on the scene with new franchise businesses during the time period of the initial franchisees’ non-competition agreement. Often, this “end run” in non-competition agreements has the same negative effect upon the franchisor as though the initial franchisee had breached his or her agreement. To combat this problem, franchisors have recently attempted to expand the number of persons who will be bound by the non-competition provisions of the original franchise agreement. Will this attempt actually yield results for franchisors? That has yet to be seen, but franchisors should be careful with their expectations regarding the enforceability of “third-party” non-competition agreements.
In the franchise world, non-competition agreements typically enjoy more protection from the Courts because of the specific nature of the business transactions between franchisor and franchisee. It is doubtful, however, that Courts will extend similar legal “extra credit” to franchisors attempting to enforce non-competition agreements against franchisee relatives because they are too legally “distant” from the initial transaction. Therefore, franchisors should have reasonably limited expectations when they attempt to enforce such agreements with franchisee spouses and relatives. On the other hand, it is fair to assume that requiring franchisee relatives to execute such agreements may act as a significant deterrent to “end runs” around franchisee non-competition agreements.
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