Offices in Ottawa and Perth
(613) 722-1500

CONTACT US (613) 722-1500

Personal Restrictions When Becoming A Franchisee

Personal Restrictions When Becoming A Franchisee

By:

Posted September 24, 2019

Most people looking for a franchise understand that there will be restrictions imposed by a franchisor on how the business is operated. This can range from a retail store having to purchase products from certain suppliers to a restaurant needing to prepare its burgers in a very specific way. However, some people are surprised to learn that these restrictions can extend beyond the running of the day-to-day business and impact them personally.

Here are some examples of the types of personal restrictions to expect in a franchise agreement:

  1. “Best Efforts” – In some franchise agreements, the franchisor will require the person acquiring the franchise to devote their full time and attention to running their franchise. As a result, someone who wants to continue working at their current job or spend part of the winter in Florida may have to change these plans if they do not realize there is a best efforts expectation from the franchisor. If this is a concern, discussing the situation with the franchisor before finalizing the franchise agreement is a good idea. The franchisor may be willing to remove this provision or allow for an alternative approach, such as a manager being hired to take on some of the responsibilities normally handled by the person acquiring the franchise location.
  2. Selling the franchise location – Sometimes a franchise is not a good fit and the franchisee may want to sell its location to someone else while there are still years remaining on the term of the franchise agreement. Unfortunately, the franchisor has to approve of any sale, which can restrict someone’s ability to quickly dispose of their location. While the franchisor will often be able to make their decision on the approval in their sole and absolute discretion, franchise agreements usually have explicit requirements to be fulfilled as well, such as the proposed franchisee agreeing to be bound by the franchise agreement and providing financial information to confirm they have the means to operate the franchise location. Furthermore, franchise agreements may require that a franchise transfer fee be paid or that the franchisor is entitled to any profit arising from the sale. Based on these complications, a franchisee should, if possible, try to limit the number of requirements imposed by the franchisor in the event of a sale.
  3. Non-competition and non-solicitation – Both during the term of the franchise agreement and after it has come to an end, there are often provisions restricting current and former franchisees from competing with the franchisor. For example, a franchise that sells Mexican food would likely have language in their franchise agreement preventing a franchisee from opening and operating another Mexican restaurant within a certain distance of any of its locations (as well as within a certain time period after the franchise agreement was terminated). A Franchisor will also restrict a franchisee’s ability to take employees or customers with them to another location or to use “secrets” of their business model (e.g. for a restaurant, the franchisee cannot use their recipes or other confidential information). Therefore, a franchisee needs to be careful they are not only complying with these requirements during the term of the franchise agreement, but after it has concluded as well.

These issues highlight the importance reviewing the franchise agreement in detail at the beginning of the process to ensure that a franchisee can comply with the requirements imposed by the franchisor. Otherwise, someone’s plan to retire early or open a new location will likely need to be put on hold.

This blog post was written by Jason Peyman, a member of the Real Estate and Business Law teams.  He can be reached at 613-369-0376  or at jason.peyman@mannlawyers.com.

More Resources

Blog |
Employment, Labour, and Human Rights, Commercial Litigation

By: 

Posted May 23, 2023

Both in my commercial and employment litigation practice, I encounter Ontario business owners faced with serious charges laid against them under the Provincial Offences Act[...]
Blog |
Family Law

By: 

Posted May 18, 2023

The recent Supreme Court of Canada decision in Anderson v. Anderson, 2023 SCC 13, provides guidance on domestic contracts and the enforceability of an informal[...]
Blog |
Environmental Law

By: 

Posted May 16, 2023

When many people think of contaminated sites, they think of the usual suspects such as industrial properties and gas stations.  They may not think of[...]
Blog |
Business Law

By: 

Posted May 9, 2023

Often business owners reach a point where they are considering the sale of their business either through the sale of shares or the sale of[...]
Blog |
Family Law

By: 

Posted May 2, 2023

Overview of Tort Claims in Family Matters Tort claims can be made in family law matters, so as to prevent a multiplicity of proceedings and[...]
Blog |
Employment, Labour, and Human Rights

By: 

Posted April 25, 2023

In a case that recently was decided from the Court of Appeal of Ontario called Celestini v Shoplogix Inc., 2023 ONCA 131, the Court had[...]

Subscribe to Our Newsletter

"*" indicates required fields

Name*
Consent*
This field is for validation purposes and should be left unchanged.