FRANCHISE LAW
Franchise Non-Compete Clauses: Are They Enforceable?
A franchise non-compete is usually enforceable when it is reasonable in time, geography, and the activity it restricts — and courts strike it down or narrow it when it sweeps wider than the franchisor needs to protect its system. Enforceability turns on state contract law, not on any federal ban, so the practical question is never “are non-competes legal?” but “is this clause reasonable, and would a court in my state enforce it as written?” This guide explains what the law actually requires, why most franchise non-competes survive, and where the disputes come from.
The FTC Non-Compete Rule Does Not Control Franchise Agreements
The Federal Trade Commission’s 2024 rule banning most non-competes never applied to the franchisor-franchisee relationship, and it is no longer in force at all. The rule covered “workers” — employees and similar individuals — and expressly excluded “a franchisee in the context of a franchisee-franchisor relationship.” A federal court in Ryan LLC v. FTC vacated the rule nationwide, the FTC abandoned its appeal in September 2025, and the agency has since shifted to challenging individual agreements case by case under Section 5 of the FTC Act rather than pursuing a blanket ban.
Two takeaways follow. First, the non-compete in your franchise agreement is governed by state law, the same as it was before 2024. Second, the rule still matters for the people you employ: non-competes you ask your own staff to sign can fall under state employee-non-compete rules and FTC scrutiny, even though the covenant binding you to the franchisor does not.
The Reasonableness Test Most States Apply
Most states enforce a franchise non-compete only so far as it is reasonable on three dimensions. A clause that is tight on all three usually holds; one that overreaches on any of them invites a challenge.
| Factor | What courts look for | Typical reasonable range |
|---|---|---|
| Duration | Long enough to protect goodwill, no longer | Often one to two years after the franchise ends |
| Geography | Tied to where the franchisee actually operated | The former territory, or a set radius around it |
| Scope of activity | Limited to a genuinely competing business | The same line of business, not all self-employment |
States diverge on what a court does with an overbroad clause. Some will “blue-pencil” it — trimming the covenant to a reasonable scope and enforcing the rest. Others refuse to rewrite the parties’ contract and decline to enforce an overbroad covenant at all. A handful of states are openly hostile to non-competes: California (Business and Professions Code § 16600), North Dakota, and Oklahoma void most of them, though covenants tied to the sale of a business and its goodwill are sometimes treated differently. Because the outcome depends heavily on the governing-law and venue clauses in your agreement, identify which state’s law applies before you assume a clause will — or won’t — bind you.
In-Term vs. Post-Term Covenants
Franchise agreements typically contain two different restrictions, and they are judged differently.
An in-term covenant bars you from running a competing business while you are an active franchisee. Courts enforce these readily — you agreed to devote yourself to the system you bought into, and the franchisor has an obvious interest in your undivided effort.
A post-term covenant restricts you after the franchise ends. This is where the fights happen, because the restriction now limits your ability to earn a living. Courts scrutinize post-term covenants harder and are the ones most often narrowed or struck for being too long or too broad.
Where Non-Compete Disputes Come From
The same problems recur across franchise non-compete fights:
- Overbroad drafting. A covenant covering the entire state, lasting several years, or barring any business “related to” the franchise is the most common reason a court refuses to enforce as written.
- A vague definition of “competing business.” If the agreement does not say clearly what you cannot do, both sides read it their own way.
- Enforcement after the franchisor’s own breach. A franchisee who was driven out by the franchisor’s conduct will argue the franchisor cannot then enforce the covenant.
- Reach beyond the signer. Clauses that try to bind a franchisee’s spouse, owners, or employees raise separate enforceability questions.
- Post-exit enforcement. Many disputes surface only when a franchisee leaves and reopens nearby — the moment the franchisor moves to enforce. For the related restriction on using confidential information, see non-compete vs. non-disclosure clauses.
How to Negotiate the Clause Before You Sign
You have the most leverage before signing, not after a dispute. Read the covenant closely and push to narrow it: shorten the duration, tie the geography to your actual territory rather than a whole state, and define “competing business” precisely so it does not bar unrelated work. Confirm which state’s law governs and where disputes are heard, because that choice often decides the result. A franchise attorney can tell you how your governing state treats these covenants and which edits a franchisor will realistically accept.
Frequently Asked Questions
Did the FTC ban non-competes in franchise agreements?
No. The FTC’s 2024 rule excluded the franchisor-franchisee relationship, and the rule was later vacated nationwide and dropped by the agency. Franchise non-competes are governed by state law.
How long can a franchise non-compete last?
There is no fixed limit; it must be reasonable. Post-term restrictions of one to two years tied to the former territory are commonly enforced, while longer or broader ones are more likely to be narrowed or struck down.
Can I escape the non-compete if my franchise failed?
Not automatically. A failed business does not void the covenant, but if the franchisor breached the agreement first, that can be a defense. The analysis is fact-specific and depends on your state’s law.
Does the non-compete bind my employees too?
The covenant in your franchise agreement binds you. Restrictions on your own employees are separate agreements governed by state employee-non-compete law, which differs from the franchise rules.
A non-compete dispute is won or lost on the wording of the clause and the law of the controlling state — not on general impressions about whether non-competes are enforceable. Reidel Law Firm advises franchisees and franchisors on drafting, reviewing, and disputing restrictive covenants in plain English. Talk to a franchise attorney before you sign or before you reopen nearby.
