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The law pertaining to non-competition agreements in franchise agreements is relatively uniform amongst Virginia, Maryland, and the District of Columbia. A non-competition agreement will be strictly construed against employers and will be found to be enforceable if the agreement as a whole is found to be reasonable. Courts require non-competition agreements to be as narrowly tailored as possible to protect the vital interests of the employer while still leaving opportunity for a former employee to pursue a career. A non-competition agreement will be enforced if (1) the covenant is narrowly tailored to protect the employer’s legitimate business interest, (2) the covenant is not unduly burdensome on the employee’s ability to earn a living, and (3) the covenant is reasonable from a public policy standpoint. The employer bears the burden of proving these factors. In determining whether an employer has met its burden of proving these factors, the court looks at the function of the restriction, the geographical scope of the restriction, and the duration of the restraint. The court analyzes these aspects together, rather than as separate inquiries. Although non-competition agreements are enforceable in these states, they are considered disfavored restraints on trade. Due to this, the employer bears the burden of proving any ambiguities in the agreement. Further, courts will construe any ambiguities in the agreement in the employee’s favor. If a provision in a non-competition agreement is capable of more than one reasonable interpretation, a court will find it to be ambiguous. If a provision is unambiguous, it is read according to its plain meaning.

Courts in Virginia, Maryland, and the District of Columbia have determined that non-competition agreements that are overly broad pertaining to the types of activities prohibited are unenforceable. Overly broad provisions are not effective in protecting an employer’s business interests because they encompass more aspects than necessary to protect that interest. “Covenants that are ambiguous, that prevent an employee from doing work unrelated to the work that they previously did for the employer, or that go beyond the employer’s legitimate interest are unenforceable.” Each non-competition agreement must be evaluated on its own merits, considering the particular circumstance of the individual case.

A franchise relationship is different from the relationship in employment contracts and contracts for the sale of a business. “Franchise agreements generally result in the transfer of good will. This first transfer occurs between the franchisor to the franchisee at the outset of the franchise. The second transfer is a re-transfer of the good will from the franchisee back to the franchisor upon termination or expiration of the agreement.”

In Brenco Enters, there was a franchise for restaurant food delivery and the franchisees made royalty payments. The action in the case was between the plaintiff franchisees and the defendant franchisor. The franchisees own and operate their own restaurant and food delivery service business. The franchisees became dissatisfied with the management under the franchise agreements. Many of the franchisees did not renew their franchise agreement at the end of the ten-year term and were subject to the one-year non-competition agreement. The non-competition agreement stated that for a period of one year after the agreement’s termination the franchisee shall not own, maintain, engage in, be employed by, advise, assist, invest in, franchise, make loans to, or have any interest in any business which is in the same as or substantially similar the franchisor’s business and which is located within a radius of ten miles of any business of the franchise. The franchisees sought a declaratory judgment that the non-competition agreement was either inapplicable or unenforceable. The court noted that the fundamental principle of a franchise agreement would be destroyed if the franchisees were permitted to use the telephone numbers, customer databases, and the franchise’s mark after the expiration of the agreements. The court found the non-competition agreement to be clear, unambiguous, and not difficult to ascertain the intent of the parties. The court found the geographic and time restriction to be reasonable in scope and therefore enforceable. The court stated to hold otherwise would be to invalidate all covenants not to compete. The court further found that the restraint on activities was reasonable because it only limited the franchisees from working for a similar business within the geographic area. Otherwise, they were not generally precluded from working for a competitor and earning a living.

A non-competition agreement between a franchisor and franchisee will be given greater deference than an agreement simply between an employer and employee. As is the case with a sale of a business, there are greater risks involved in giving a franchisee trade secrets and customer databases. The franchisor has a legitimate interest in maintaining the wellbeing of its franchise by enforcing a non-competition agreement against franchisees that choose not to re-sign. As was shown in Brenco Enters., when a non-competition agreement is bargained for, a franchisee will have the terms of the agreement enforced when they are narrowly tailored and reasonable in scope. To permit the franchisee to continue to do business with the franchisor’s information would be unconscionable.

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