Post-term noncompete covenants are pervasive for employment and franchise agreements
in the United States. While franchisors have legitimate business interests to be protected
by restraints on the post-term competition of former franchisees, these covenants
are unduly burdensome on those bound by them and thus are sometimes declared void, left
unenforced, or reduced in scope. In some cases, even noncompetes that courts would not
enforce nevertheless burden franchisees because of their in terrorem effect.
This Article outlines the arguments for and against including post-term noncompete
covenants in franchise agreements. It addresses different state-law approaches to regulating
the enforcement of noncompete covenants, as well as how noncompetes could be impacted
by a nationwide per se ban of these covenants in the employment context. Finally,
the Article evaluates potential solutions to the noncompete problem that would result in
greater equity for franchisees. It looks to the treatment of franchise noncompetes in other
countries, and it considers alternatives such as nondisclosure agreements, intellectual
property rights, training repayment agreements, rights to repurchase assets, and other incentivization
techniques. Given the numerous, focused, effective, and lawful alternatives to
post-term noncompete covenants and the great burden that these covenants impose on
franchisees, the post-term franchise noncompete should be considered against the public
interest and thus declared unenforceable.

Read PDF