Jonathan Muncey, Author at LegalVision

About Jonathan Muncey

Jonathan assists both franchisors and franchisees throughout their entire business journey by advising on transactions, preparing or reviewing contracts, and providing advice on a range of related legal issues including; structuring, licensing, leasing and employment. Jonathan aims to provide ongoing practical guidance and solutions for franchisors and franchisees so they can focus on achieving their business goals. Before joining LegalVision, Jonathan was a Dispute Resolution Officer with the Office of the Franchising Mediation Adviser (OFMA) where he assisted in administering the dispute resolution procedures of the Franchising Code of Conduct.

How Will Modern Slavery Legislation Affect My Business? | LegalVision

September 25, 2018

How Will Modern Slavery Legislation Affect My Business?

The New South Wales Parliament has passed legislation which places obligations on organisations to take steps to prevent modern forms…

Can I Sell Software Internationally?

September 19, 2018

I’m a Franchisor: Should I Use a Cooperative Marketing Fund?

Taking the leap of franchising your business means making decisions … a lot of them. One of these decisions is…

Top 5 Reasons to Franchise Your Business | LegalVision

August 28, 2018

Top 5 Reasons to Franchise Your Business

Are you a business owner thinking of expanding your business? You have probably considered the model of franchising. If you…

I’m Thinking of Purchasing a Franchise. Will I Have an Exclusive Territory?

April 24, 2018

I’m Thinking of Purchasing a Franchise. Will I Have an Exclusive Territory?

If you’re purchasing a franchise, it’s important to consider whether your franchisor will grant you an exclusive territory to operate…

When Should I Issue a Franchising Notice of Dispute?

April 3, 2018

When Should I Issue a Franchising Notice of Dispute?

Unfortunately, disputes can arise during the franchise relationship. Both parties to a franchise agreement rely on the other to uphold…

Does a BYO Restaurant in NSW Need a Liquor Licence?

April 3, 2018

I’m Thinking of Buying a Franchise – Am I Liable for the Lease?

Potential franchisees must consider many things before purchasing a franchise business. Franchisors control the larger system in which you’ll be…

I'm a Franchisor. How Should I Manage Franchise Disputes?

March 30, 2018

I’m a Franchisor. How Should I Manage Franchise Disputes?

As a franchisor, it’s important to avoid franchise disputes and ensure all franchisees are working to maintain — and even…

I'm a Franchisee. How do I respond to a Breach Notice?

February 14, 2018

My Franchisor is Insolvent. What Does This Mean for my Franchise?

Franchisors, as with any other business, are at risk of becoming insolvent. In recent years, some well-known franchise systems have…

Updates to Franchise Third Line Forcing and Price Fixing

February 14, 2018

Competition Law Update for Franchisors: Third Line Forcing and Price Fixing

Recent changes to competition law could significantly impact the way franchisors determine and enforce their pricing systems and supply chains.…

If you’re a franchisee, and you’re thinking about leaving the franchise, it’s important to note that there are restrictions on what you can do next. For example, can you: continue to operate their business without the franchise name; start a new business in the same industry; or relocate to another area and start a similar business? The answer will vary based on the franchise, the wording of the restraint in the franchise agreement, and any negotiated agreement between the franchisor and franchisee. This article looks at the relevant factors to consider when answering these questions. Effect of Restraints in Franchise Agreements Nearly every franchise agreement will include a restraint of trade clause, sometimes called a restrictive covenant or non-compet. The purpose of these clauses is to forbid a franchisee from operating in competition with the franchise system. A restraint of trade clause will commonly prevent a franchisee from operating a similar business as the franchise during and for some time after the term of the franchise agreement. A franchise agreement may also seek to stop a franchisee from soliciting any current or former employees and customers without the franchisor’s consent. This is referred to as non-solicitation. However, only reasonable restraint of trade clauses are enforceable. Otherwise, these clauses are void. Therefore, a franchisor must take a franchisee to court to demonstrate that the restraint is reasonable. Generally, courts will first examine whether the franchisor has a legitimate interest that would warrant the restraint. For example, a court may look at the area covered by the restraint. If the franchise only operates in one state, but the agreement contains a geographical restraint that extends to all of Australia, the court will likely reject the restraint. With that said, the court can reconstruct the scope of the restraint so that it becomes reasonable For example, a court could change the Australia-wide restraint so that it only prevents the franchisee from operating a similar business in the state where the franchisor operates. For this reason, restraint clauses are often drafted in a way so as to provide a court with options for what may be considered reasonable—essentially so that a court can ‘pick and choose’ which combination of options should apply. Negotiated Arrangements with the Franchisor Even when the franchise agreement has a reasonable restraint of trade clause, the franchisee can still negotiate with the franchisor to be released from the restraint. If you do this, you should document the results of this negotiation in a formal settlement agreement. Even when a franchisor has expressed to a franchisee that it will not prevent a franchisee from operating outside the system, having a formal agreement will ensure that the franchisor cannot in future bring a claim for breach of the restraint. This settlement arrangement is usually set out in a deed of settlement and release—a contract that finalises the relationship between the franchisor and franchisee. These sorts of settlements often occur when the parties have decided to disassociate themselves from one another for various reasons. It may no longer be in both parties interests for the franchisee to remain under the branding of the franchisor and so the franchise agreement is being ended before the duration of the fixed term. In these situations, a deed of settlement and release will release the parties from liability for any possible breaches of their obligations under the franchise agreement. In addition, a franchisor can contractually agree to release the franchisee from any restraint . However, a franchisor is not normally obliged to enter into a settlement agreement with a franchisee. They may be reluctant to release a franchisee from a restraint of trade clause as this would risk the ex-franchisee entering into competition with the franchisor using the experience and skills they gained in the franchise network. However, the franchisor may be motivated to enter a settlement agreement to ensure that they do not have any future liability. For example, the franchisor may have failed to comply with terms of the franchise agreement and want to prevent the franchisee from taking legal action. A settlement arrangement is usually reached through ‘without prejudice’ negotiation between the parties, where both franchisor and franchisee can speak openly about their intentions for the future and willingness to compromise. Once an agreement has been reached in principle, a deed will be drafted by one side and then reviewed by the other. Key Takeaways Most franchise agreements contain restraints of trade or restrictive covenants. These restraints will not automatically apply.They are unenforceable unless it can be shown that they are reasonably required to protect the legitimate interests of the franchisor. However, a franchisor can take action to enforce a reasonable restraint. This can affect a franchisee’s ability to operate a similar business after leaving the franchise. If you’re a franchisee looking to continue operating after you leave a franchise, LegalVision’s franchise lawyers can advise you on your rights. Call us on 1300 544 755 or fill out the form on this page.

January 24, 2018

Is the Restraint in My Franchise Agreement Binding on Exit?

If you’re a franchisee, and thinking about leaving the franchise, it’s important to note that there are restrictions on what…

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