A Massachusetts federal court granted a franchisor’s request to enforce the franchise agreement’s post-termination non-compete provision against a terminated franchisee.
The franchisor terminated over a dozen franchise agreements for the franchisee’s failure to pay royalties and other franchise fees. The franchisor then filed suit against the terminated franchisee to enforce the 3-year post-termination non-compete provision, among other post-termination terms, because the terminated franchisee continued to offer the same plumbing and water damage restoration services.
Under Massachusetts law, a covenant that restricts competition is only enforceable if it is (1) necessary to protect a legitimate business interest, (2) reasonably limited in time and space, and (3) consonant with the public interest. The court found the non-competition provision enforceable, provided the terms are reasonable.
The provision reasonably protected legitimate business interests because it served to protect the franchisor’s confidential information, trade secrets, and goodwill.
Public interest weighed in favor of enforcement because the public has an interest in enforcing reasonable contracts. The court acknowledged the terminated franchisee may suffer hardship from enforcement of the non-competition provision, but that such harm is a predictable consequence of the franchisee’s breach because the franchisee knowingly agreed to the reasonable post-termination restrictions in exchange for the benefits of participating in a franchise system.
As to time and space, the court found the 3-year term unreasonably long for a non-competition obligation and reformed (shortened) the provision to a 2-year term. The geographic range, as worded, was also found unreasonable. The term covered 100 miles of any franchise territory. However, given the franchisor only sought to enforce the provision within the franchise territories under the terminated agreements, the court ultimately found it reasonable.
Franchisees should consult franchise counsel to evaluate the applicability and reasonableness of any post-termination restrictive provisions prior to transitioning operations of a former franchised location. Though there are differing state laws and policies concerning non-competition provisions, courts may find the franchise relationship serves as a reasonable basis for enforcement so long as the provision is reasonable in time and scope.
Rooterman, LLC v. Belegu, — F.Supp.2d —- (D. Mass. Apr. 11, 2025) (No. 24-cv-13015-PBS, 2025 U.S. Dist. LEXIS 70947)
