The recent case of Dwyer (UK Franchising) Ltd v Fredbar Ltd and another  EWHC 1218 (Ch) reminds us that franchisors should always carefully consider whether the restrictive covenants they want to draft into their franchise agreements are reasonable and therefore enforceable.
In this case there were provisions in the franchise agreement restricting the franchisee from being engaged in a business similar to or competitive with the franchisor’s business, within the territory (Cardiff) or an extended 5 mile radius, for one year after expiry or termination of the franchise agreement. The court found that these restrictions were unreasonable and therefore unenforceable.
Although each case in this area will be based on the specific facts of the case and the circumstances under which the franchise agreement is entered into, franchisors should always consider the reasonableness of the restrictive covenant they want to draft into their franchise agreements based on the circumstances of the franchisor and franchisee.
More information on the case, its facts and the judges conclusions can be found here.
These prohibitions do not strike a reasonable balance between the freedom to contract and the freedom of trade.