Can My Former Franchisor Shut Down My Business?
Yes – if you are operating a competitive business and your business was formerly operated as a franchised location. Of course much will depend on the “restrictive covenants” contained in your franchise agreement and the procedural and legal issues surrounding your franchise termination. Generally, however, franchise agreements contain “pots termination” restrictive covenants that state things like: upon termination of the franchise agreement, a franchisee may not operate a similar type of business. This non-compete restriction is usually for a period of 2 years within a certain geographic location.
When the termination of a franchise agreement is valid and enforced, a court will generally uphold this type of non-compete agreement.
However, there are defenses that may be available to you but the merits of these defenses will depend much on the facts of your case and the state where your franchise is located. My recommendation, take these noncompete provisions and restrictive covenants serious but dont give up in challenging them since you may find a way out.