When there is a dispute in a franchise agreement between a franchisor and a franchisee, often the franchisee will assume that they may merely stop paying royalties, change the name on the sign of their franchised outlet and immediately go into competition with the franchisor. It is one of the most common legal disputes and franchisee today.

Therefore each and every franchisor must be careful to protect their proprietary knowledge and know-how with covenants not to compete in their franchisee agreements. In my franchisee company I had determined that this was the most single important issue in the entire franchise agreement. Below you will find a clause called covenants not to compete that I inserted in every franchise agreement;

3.20 Covenants Not To Compete

Franchisee specifically acknowledges that, pursuant to the Franchise Agreement, Franchisee will receive valuable specialized and confidential information, including information regarding the operational, sales, promotional and marketing methods and techniques of Franchisors and the System. Franchisee agrees not to copy, download to internet, intranet, modem, fax, e-mail, mail or send any confidential material or divulge any material directly or indirectly to any other person or enterprise outside of this System. Franchisees agree that, during the term of the Franchise Agreement, except as otherwise approved in writing by Franchisor, Franchisee must not, either directly or indirectly, divert or attempt to divert any business to any competitor, by direct or indirect inducement or otherwise, or do or perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with the Franchisor