Restraint Of Trade In Franchise Agreement
A business owner sold his franchise. The contract of sale contained a trade restriction clause that stated that it (or a related company) could not compete with the franchise for a period of two years in the Lower North Island. During those two years, he decided to use the skills he had gained from his time as the owner of the franchise and start a similar business under another business name. He thought the franchisor wouldn`t even notice that he was acting. The courts recognize that franchisors have an interest in protecting the patronage developed by the franchise, which can be lost if the franchisee is allowed to compete fully. The restriction was not applicable and the franchisee was allowed to engage in a competing business. Australia, State, Territory). The limitation period has been defined several times through a “cascading clause”, ranging from one year to ten years. What is “reasonably necessary” depends on the circumstances of the business concerned, but courts have a number of criteria that they take into account in their decision. Its criteria include considerations such as the type of business being managed (i.e. it is low-skilled or highly qualified?; is it general or unique?), as well as the prior knowledge of the franchisee.
With regard to the latter point, the courts are less inclined to impose long restrictions when the Francisee was already qualified or qualified in the sector concerned. Conversely, it is more likely that a court will impose a longer restriction if the franchisee has acquired considerable knowledge of an industry from its franchisee and proposes to use that training to compete directly (and immediately). This can have significant consequences for someone who is trained in a given field of work.