In a late November Order, a Federal Court in Massachusetts required an in breach franchisee to de-brand, but refused to enforce the non-compete portions of the franchise agreement.
In part, the Court ruled:
“…Taking the motion as a whole, the balance of the hardships and the public interest both weigh heavily in favor of the Defendants [franchisee] ... If enjoined, they would effectively have to go out of business.
While the court can not speculate as to an exact figure of monetary loss that [the franchisor] might incur if Defendants continue to operate a convenience store at [the] location during the litigation, the resulting lost profit to the [the franchisor] corporation from its temporary lack of ability to operate one of its 50,000 store locations is not significant when compared to the harm that Defendants would suffer.”
Because each state enforces restrictive covenants differently, this ruling brings to light that each party to a franchise agreement should pay careful attention not only to the on restrictive covenants where the franchise is located but also to the law governing the franchise agreement itself. Careful drafting and understanding of the implications of carefully drafted agreements and amendments is critical. This is especially so with respect to restrictive covenants as enforcement varies by state and one court ruling could impact the entire franchise system.