Restrictive Covenants In Franchise Agreements

Author:Mr Neil Johnston and Gordon Drakes
Profession:Field Fisher Waterhouse
  1. Introduction

Restrictive covenants ("RCs") are very common in franchise, agency and distribution agreements. They seek to protect goodwill, know-how 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 consist 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 the case of 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. In Carewatch Care Services Limited v...

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