Reviewing Restraint Clauses

 

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Restraint of Trade Clauses

 

A restraint of trade clause will not necessarily apply or be enforceable. 

 

Clause 23 of the Franchising Code of Conduct (the Franchising Code) sets out a series of circumstances in which a restraint of trade clause contained in a franchise agreement has no effect after the franchise agreement expires.

 

Further, except for franchise agreements where New South Wales law is applicable, restraints of trade are contrary to public policy and void unless they can be justified as being reasonable.

 

“Reasonable” in this context means that the restraint provides no more than adequate protection to the person seeking to enforce the restraint.

 

Whether a restraint is reasonable is usually considered by looking at:

1 - the scope of the activity restrained;

2 - the geographical area covered;

3 - the duration of the restraint.

 

At the same time, a restraint of trade clause cannot be against the public interest.

 

Reviewing the Restraint Clause

 

We will consider your circumstances and review the restraint of trade clause contained in your franchise agreement or your surrender deed.

 

If the restraint is drafted too widely, or if there is another way to protect the interests of the party trying to enforce the restraint of trade clause, the clause may not be enforceable.

 

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