Enforcing restrictive franchise covenants in bankruptcy and beyond

Article Abstract:

Recent bankruptcy court decisions have confused the issue of whether restrictive covenants of franchises should be enforceable during bankruptcy proceedings. Termination of franchises is generally not possible once a bankruptcy has been filed; however, franchisors may be able to have the contract decision affirmed or rejected by petitioning the bankruptcy court. Rejection of the contract is considered grounds for terminating the franchise. Proper drafting of the franchise agreement will offer the franchisor the most effective recourse in case of franchisee default. Case law is presented.

Bankruptcy law, Real covenants

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Summary of the LaFalce legislation

Article Abstract:

The Federal Franchise Disclosure and COnsumer Protection Act is intended to ensure that prospective franchisees receive all the information necessary to make an informed decision. It also makes it easier for franchisees to remedy wrongs they may suffer from franchisors. The Federal Fair Franchise Practices Act prohibits most covenants to not compete after the term of the franchise, requires good cause for termination and allows franchisees to purchase goods and services from any supplier they choose.

Commercial law

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The dreaded Scott decision - the status of enforcing post-termination non-competition covenants in California

Article Abstract:

A federal court in California has ruled in Scott v Snelling & Snelling that covenants not to compete may not be enforced under the California Business and Professions Code, unless a franchisor's tradename, trademarks or trade secrets have been infringed. Though California is attempting to encourage free competition by defining trade secrets fairly narrowly, non-competition covenants will still enjoy some deference from the courts in California.

Cases, Non-competition agreements, Noncompete agreements

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