Post-contractual rights and obligations

After the franchise agreement has run its course or is terminated, the relationship does not end immediately. For instance, the franchisor often has a non-compete clause in the franchise agreement that prevents the franchisee from operating a competing business within a specific time frame and proximity of the previously operated franchise.^[1] Non-compete clauses ensure that the franchisee does not immediately become a competitor of the franchisor, who has primarily trained the franchisee.

Also, the franchise agreement usually details what occurs in the event of a franchisee’s death, if renewals are permitted, and what happens if the franchisee or franchisor wants to transfer the agreement to some third party or have the franchisor take over.^[2] The right to renew the franchise agreement is fundamental since the franchisee has much time, resources, and sunk costs tied to the franchise location. However, franchise agreements are rarely considered evergreen unless the exact and precise language in the agreement states otherwise. The reason being that the courts view evergreen contracts as against public policy due to limiting the alienability of the parties’ rights in the future, essentially tying their hands indefinitely.

Finally, the franchisee has an obligation upon the termination of the franchise agreement to disassociate itself from the franchise and stop using the IP within a specific time limit.^[3] IP that the franchisee needs to stop using includes all the rights that were initially allocated in the franchise agreement: including the use of the trademark, goodwill associated with the trademark, usage of trade secrets, know-how, copyright material, and other proprietary material.

[1] Martin Mendelsohn, The Guide to Franchising, 196 (7th ed. 2003); International Chamber of Commerce, supra note 20, at Preamble, Article 9.

[2] Martin Mendelsohn, The Guide to Franchising, 196-197 (7th ed. 2003); International Chamber of Commerce, supra note 20, at Preamble, Articles 25, 29, 30.

[3] Martin Mendelsohn, The Guide to Franchising, 201-203 (7th ed. 2003); International Chamber of Commerce, supra note 20, at Preamble, Article 27.