FRANCHISE LAW
Franchise Non-Compete Clauses: A Franchisor's Guide
A franchise non-compete clause is only worth what a court will enforce, and courts enforce the reasonable ones — restrictions that are no broader in time, geography, and scope than your legitimate interest requires. Franchisors need two kinds of covenant: an in-term clause that stops a franchisee from running a competing business while operating yours, and a post-term clause that keeps a departed franchisee from converting your training, trade secrets, and local goodwill into a copycat down the street. The post-term one is where most clauses fail, because franchisors overreach and judges strike the whole thing. Drafted carefully, both hold.
The federal picture: state law still governs
For a while it looked like federal law might wipe out non-competes. The FTC issued a rule in 2024 banning most of them, a federal court in Texas vacated that rule nationwide before it took effect (Ryan, LLC v. FTC), the FTC dropped its appeal in 2025, and in early 2026 the agency formally removed the rule from the Code of Federal Regulations and shifted to case-by-case enforcement. The practical takeaway as of 2026: there is no federal non-compete ban. Franchise non-competes are governed, as they always have been, by the law of the state whose rules apply — and those vary widely.
That state-by-state reality is the single most important fact for drafting. A clause that is routine in Texas may be void in California, which broadly refuses to enforce non-competes. A nationwide system needs a covenant that can flex by state, not one fixed boilerplate.
In-term vs. post-term covenants
Separate the two, because they are judged differently.
The in-term covenant — no competing business while you hold the franchise — is rarely controversial. A franchisee agreeing not to run a rival concept during the relationship is reasonable on its face.
The post-term covenant — no competing business for a set time and area after the franchise ends — is the one courts scrutinize. To survive, it has to protect a real interest (your marks, confidential system, and the goodwill the franchisee built using your brand) without simply punishing a former operator for earning a living.
The reasonableness test
Most states ask whether the restriction is reasonable on three axes and tied to a legitimate business interest.
| Factor | Defensible range | Where franchisors overreach |
|---|---|---|
| Duration | Often one to two years post-term | “Perpetual” or five-plus years |
| Geography | The former territory plus a modest buffer | Entire state or nationwide |
| Scope of activity | The specific competing business | “Any business” or unrelated industries |
| Protected interest | Trademarks, trade secrets, system, goodwill | Stifling ordinary competition |
The pattern is consistent: tie each limit to what you actually need to protect. A two-year, former-territory, same-concept restriction reads as reasonable. A ten-year, statewide ban on “any food business” reads as a penalty — and a penalty is what gets a clause thrown out.
Draft it to survive, not just to deter
A clause that looks intimidating but collapses in court is worse than a modest one that holds, because it gives a departing franchisee nothing to fear. Three drafting habits keep covenants enforceable.
First, match the geography to the franchisee’s actual territory rather than your whole system. Second, pair the non-compete with confidentiality and non-solicitation provisions, which protect your trade secrets and customer relationships even where a pure non-compete is weak. Third, know your state’s reformation rule: some courts will “blue-pencil” an overbroad clause down to a reasonable one, but others void it entirely, so the only safe assumption is that a court will enforce exactly what you wrote — or nothing.
Because enforceability turns on facts that change between states and over time, a non-compete is one of the clauses most worth building into a broader plan to reduce disputes, and one of the rights to keep proportionate to your obligations as a franchisor.
Frequently asked questions
Are franchise non-compete clauses still legal in 2026?
Yes. The FTC’s attempted federal ban never took effect and was removed from the regulations in 2026. Franchise non-competes remain enforceable to the extent state law allows, which means reasonable, interest-tied restrictions in most states — and very limited ones in states like California.
How long can a post-term non-compete last?
There is no universal number, but courts most often uphold one- to two-year post-term restrictions tied to the franchisee’s former territory. Longer and broader clauses face real enforceability risk.
What if my clause is too broad?
It depends on the state. Some courts will narrow an overbroad clause to a reasonable scope; others refuse and strike it entirely. You cannot count on a court to fix your drafting, so write it reasonably from the start.
Should I rely on a non-compete alone?
No. Combine it with confidentiality and non-solicitation provisions. Those protect your trade secrets and customer relationships even where a non-compete is hard to enforce.
A non-compete that is tailored, reasonable, and backed by confidentiality terms protects your brand without inviting a court to gut it. Reidel Law Firm drafts franchise agreements and restrictive covenants on a flat fee, built for the states where you actually sell: explore flat-fee franchise setup or talk it through with a franchise attorney.
