Is it legal for the franchisor not to allow the franchisee to sell similar products after the franchise expires? 2 Answers as of October 01, 2014

One of my friend is a franchisee of a food service company. One fact of their agreement is: Franchisee acknowledges that franchisor enter into this agreement in consideration of, and reliance on franchisee's agreement to deal exclusively with franchisor and to refrain from using any of Franchisor's trade secrets in any activity competitive with franchisor, and to refrain from transferring the goodwill associated with the marks to any other business . Therefore, during the term of this agreement , franchisee and collectively and individually all director, officers and holders of any direct or indirect beneficial ownership interest of five percent or more of the securities or other equity interests of Franchisee or of any corporation, limited liability company, partnership or other form of entity affiliated with or directly or indirectly controlling or controlled by franchisee and each relative of each such person who’s individual , including each such person's mother, father, husband, wife, brother, sister, son or daughter (collectively "Covered Persons"), shall not have any interests as an owner of investor, partner, lender, director, officer, member, manager, employee, consultant, representative or agent or in any other capacity in any business selling Asian style food, sushi or fresh fish products, steamed foods or any other retail food retail food business without franchisor's prior written consent. For 2 years after this agreement expires without renewal or terminates, Franchisee and all Covered Persons shall not have any interest as an owner of investor, partner, lender, director, officer, member, manager, employee, consultant, representative or agent or in any other capacity in any business selling Asian style food, sushi or fresh fish products, steamed foods or any other retail food retail food business without franchisor's prior written consent within: A. 5 miles of any food service counter operated by Franchisor or by any franchisee or licensee.

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Barton Barton & Plotkin
Barton Barton & Plotkin | Maurice Ross
Yes in all probability this is legal. Restrictive covenants are legal in New York and most states if reasonable in scope. Two years is almost certainly reasonable. But there are often ways to work around or renegotiate these covenants. We help clients deal with this problem often. Please feel free to contact us.
Answer Applies to: New York
Replied: 10/1/2014
Webb IP Law Group
Webb IP Law Group | Jason P Webb
Non-compete provisions are governed by state law and are very different from state to state. You should consult an attorney in the state where they plan to do business.
Answer Applies to: Utah
Replied: 10/1/2014
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