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Articles 29th Jan 2015

How reasonable are the restrictive covenants in your franchise agreements – Part 3

To follow on from our previous bulletins on this subject (Bulletin 1) (Bulletin 2),  a recent case addressed this subject when a franchisee operates a complimentary business.

In Oven Clean Domestic Ltd v Read 2015 a restrictive covenant that clearly restricted a franchisee from operating a competing business in the same territory as allocated to her in the franchise agreement for 12 months from termination was held to be reasonable.

In this case the franchisee operated a cleaning business alongside her oven cleaning franchise and argued that this restriction prevented her from operating her complimentary cleaning business also.

The court held that the fact this affected her existing business did not prevent the restriction applying to oven cleaning – the length and intent of the restriction was reasonable as a legitimate protection of the franchisors business interests in the allocated postcode territory of the former franchisee. Ovenclean was successful in securing an injunction to restrain the franchisee from operating her business.

Comment – well drafted restrictive covenants will be enforceable and help stop errant franchisees from competing. Ensure that your covenants fall within the parameters that are acceptable in law.

The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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