Restrictive Covenants in Franchising – case law update

Restrictive covenants ("RCs") are very common in franchise, agency and distribution agreements. They seek to protect goodwill in the brand and customer relationships by limiting the licensee’s right Restrictive covenants ("RCs") are very common in franchise, agency and distribution agreements. They seek to protect goodwill in the brand and customer relationships by limiting the licensee’s right to operate a competing business both during the term and after the termination or expiry of the agreement.

RCs will typically comprise of undertakings of non-solicitation, non-dealing, confidentiality and non-competition and have a specific duration and/or geographical reach. RCs can be vital in protecting the integrity of a brand's network.

Two recent cases in the English Courts have considered the enforceability of RCs:

• In Prophet Plc v Huggett (the "Prophet Case"), the Court of Appeal overturned a decision in the High Court, which had taken an unorthodox approach to an incorrectly drafted post termination RC in an employment contract; and


 

 

• In Carewatch Care Services Limited v Focus Caring Services Limited & Others (the "Carewatch Case"), Mr Juctice Henderson considered (and upheld) the enforceability of standard post termination RCs in a franchise agreement, as a matter of common law and under principles of EU and UK competition law.


 

We have prepared a briefing paper on this topic which considers the background of RCs in the context of franchising and discusses the implications of both judgments.

To read the full briefing paper, please click here Restrictive Covenants in Franchising

If you would like more information on this topic, please contact your usual franchise team member or Gordon Drakes (Senior Associate).