Noncompete Clause

When you purchase a franchise, you sign an agreement called a franchise disclosure document that in general, outlines the terms of the relationship between the franchisor and franchisee. The franchisor discloses many of its proprietary operating secrets, i.e. know-how, and the franchisee agrees to safeguard those secrets. It is only natural that a franchisor would want to protect trade secrets it shared with the franchisee should the franchise agreement be terminated by either party. One of the most common clauses that is used when a franchise agreement is terminated is the non-compete clause.

Recently, an HR Block Income Tax ex-franchisee was sued by the parent company for breach of contract and theft of trade secrets when the franchisee secretly recorded and retained the income tax data from the customers the franchisee collected during his tenure owning and operating 3 HR Block franchises in the state of California. The ex-franchisee had recently sold his 3 HR Block franchises back to the parent company for $425,000. The agreement that the franchisee signed allegedly states that the franchisee agreed not to open an income tax business within a 50-mile radius of where his three income tax businesses were and he also agreed not to contact the clients for at least 5 years. After selling his 3 franchises back to HR Block, the former franchisee simply set up shop down the block and solicited the customers, telling them that he had relocated. The agreement allegedly required the ex-franchisee to turn all client records to HR Block and then permanently delete them from his computer system. HR Block is attempting to secure a restraining order to prevent the ex-franchisee from soliciting the clients that are likely to be lost forever to HR Block once their current income taxes are prepared.

Source: http://www.bizjournals.com/kansascity/news/2017/03/14/hr-block-carlos-martinez-lawsuit.html