Franchising & Restrictive Covenants: Retail e-brief February 2017

Restrictive covenants are commonplace in contracts where one party is selling their business. They are a contractual safeguard ensuring valuable stakeholders are not poached from a business by an ex-employee entering into competition with their old place of work. Yet, while they are frequently incorporated into commercial contracts, the recent case involving a dispute between a national hairdressing chain and a local franchisee owner Rush Hair Ltd v Hayley Hayley Gibson-Forbes and S.J. Forbes Limited brought to light a number of issues in the context of franchising and Share Purchase Agreements

  • How long can you restrict another Party from setting up in competition?
  • Can you prevent them also from enticing staff away, and if so, for how long?
  • Can an individual hide behind a company structure to avoid any restrictions?
  • How long is too long when it comes to restrictive covenants in your contracts?
  • Will restrictive covenants agreed by a corporate seller also bind the director and shareholder personally?
  • So where does this leave Franchisors and, for that matter, anyone buying or selling their businesses?

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