Franchising & Distribution Law Blog

Despite arguably conflicting terms in a franchise agreement, a franchisor could enforce a non-compete provision whenever the agreement ended, whether by termination or expiration. An arbitrator reached that conclusion by harmonizing two provisions in the franchise agreement that referenced a non-compete obligation — one that referenced termination and one that referenced both termination and expiration. This was a reasonable interpretation of the contract, according to the Maryland federal district court that found no basis to upset the arbitration award.

Think twice before requiring at-will, low-wage workers to sign noncompetes

On June 8, the Illinois attorney general filed a lawsuit in Cook County (Illinois) Circuit Court against two Jimmy John’s entities: franchisor Jimmy John’s Franchise LLC and an LLC owning eight Jimmy John’s sandwich shops, Jimmy John’s Enterprises LLC. The lawsuit alleges the sandwich chain engaged in unfair and deceptive acts or practices unlawful under the Consumer Fraud and Deceptive Practices Act. The lawsuit seeks to stop the allegedly unlawful use of noncompetition agreements on at-will, low-wage employees and to ensure that current and former employees are informed that the noncompetition agreements they signed are unenforceable. 

The United States District Court for the Eastern District of Pennsylvania recently enforced a non-compete clause in a franchise agreement and granted a franchisor a preliminary injunction against its former franchisee. The court noted that Pennsylvania law recognizes that a franchisor has a legitimate business interest that can be protected by a non-compete clause, and that there was adequate consideration for the non-compete clause in that the clause was entered into as a condition of the franchise relationship. The court then analyzed if the non-compete clause was “reasonably limited in both time and territory.” The non-compete clause at issue had a duration of two years and the geographic scope of the clause was limited to ten miles from the perimeter of the franchisee’s former territory or the territory of any other franchisee.