All good things come to an end

A franchise relationship can come to an end in a number of ways:

• There may be a serious breach of the franchise agreement by the franchisor
• There may be a serious breach of the franchise agreement by the franchisee
• At the end of an agreement for a fixed period (unless it is renewed)
• The franchisee may sell his or her franchised business
• The franchisee may die or become bankrupt
• The franchisor may go into liquidation
• In some cases the law may intervene to terminate the relationship

So, as a franchisee, in these circumstances they cannot expect to carry on using their former franchisor’s brand and confidential information. They will readily change their marketing image but expect to retain ‘their’ customers and to carry on the same business from the same premises or within the same territory as before, although under a different name.

Although this sounds reasonable, your former franchisor will have a different take on the matter. Their primary concern will be:

1. To protect his/her brand (trade name, trademarks, etc)

2. To protect his/her business secrets

3. To protect his/her franchisees from unfair competition

4. To protect his/her business from unfair competition

To preserve these the franchise agreement will contain promises by you that you will not do anything after termination that jeopardises any or all of the above mentioned. If you have taken legal advice before you signed the franchise agreement this will have been pointed out to you by your solicitor.

So, exactly how enforceable are such promises? Are they all enforceable, or only some, or … none at all? For such promises to be enforceable, they have to be reasonable in what they are seeking, in how long such promises are to last and the extent of the territory within which they seek to prevent you from doing the same business. Promise one – to protect the brand name – can last forever. In the case of promise two, only so long as the secrets remain secret and are not made public. Whether promises three and four can be enforced will depend on how well they are drafted in your franchise agreement and what the law has to say. It was generally accepted that even though such promises are contained in the franchise agreement and the agreement is terminated, these promises remain alive after termination for the duration of the promise, usually one year, but not always. But what happens if, for example, your franchise agreement has terminated but you agree to carry on without signing another agreement for another 18 months or so while the new franchise agreement is being prepared. However, before you sign the new franchise agreement, you decide not to carry on, for whatever reason. Are you still bound by your promises not to

In the case of promise two, only so long as the secrets remain secret and are not made public. Whether promises three and four can be enforced will depend on how well they are drafted in your franchise agreement and what the law has to say. It was generally accepted that even though such promises are contained in the franchise agreement and the agreement is terminated, these promises remain alive after termination for the duration of the promise, usually one year, but not always. But what happens if, for example, your franchise agreement has terminated but you agree to carry on without signing another agreement for another 18 months or so while the new franchise agreement is being prepared. However, before you sign the new franchise agreement, you decide not to carry on, for whatever reason. Are you still bound by your promises not to

But what happens if, for example, your franchise agreement has terminated but you agree to carry on without signing another agreement for another 18 months or so while the new franchise agreement is being prepared. However, before you sign the new franchise agreement, you decide not to carry on, for whatever reason. Are you still bound by your promises not to compete, etc, for one year? Did the clock on the one-year promise start ticking from the date your franchise agreement terminated or from the date when you decide to give up the franchise?

However, before you sign the new franchise agreement, you decide not to carry on, for whatever reason. Are you still bound by your promises not to compete, etc, for one year? Did the clock on the one-year promise start ticking from the date your franchise agreement terminated or from the date when you decide to give up the franchise?

In a recent case known as the Flat Roof case*, the court decided that in these circumstances, the promise no longer applied after the end of a period of one year from the end of the franchise agreement. Now, it would seem that this has changed. Last December, in the High Court, the judge questioned whether the decision in the Flat Roof case* was correct. He stated: “It seems to me that if parties continue to operate a franchise after

Last December, in the High Court, the judge questioned whether the decision in the Flat Roof case* was correct. He stated: “It seems to me that if parties continue to operate a franchise after expiry of the contractual term, the likely inference is that they intend their relationship to continue to be governed by the term of their original contract.”

This suggests that the clock starts ticking from the date you leave the franchise. Therefore you will not be able to escape the promises you made in a well-drafted franchise agreement simply by delaying renewal of a franchise agreement and then leaving the network after what you consider a safe period.

The moral of the story for franchisees is – know your rights and responsibilities from the outset and consult a solicitor who not only specialises in franchising but keeps up with changes in the law, otherwise you may receive the wrong advice.

You may also be interested in...