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Care home company protects its business against franchisee

Posted: 30th July 2014   In: Dispute Resolution

A care home company has successfully stopped one of its former franchisees setting up a rival business and competing for the same clients.

The case involved a company that operated several franchises. It also managed various care home branches of its own.

One particular franchisee felt that he wasn’t being given enough support by the company. He felt that it had become more interested in developing its own branches. It had even set up its own branch in the same area of his franchise and was in competition for the same clients.

On this basis, he ended the franchise agreement and set up his own care home business.

The care home company applied for an injunction to prevent the franchisee setting up as a competitor.

A covenant in the franchise contract stated that no franchisee could set up a rival firm and compete for business for at least twelve months after the agreement had been terminated.

The franchisee argued that the company had already broken this agreement by failing to offer him the necessary support and setting up its own branches near his franchise. He argued that it had failed to adhere to a relationship of “good faith” that was implied in the contract.

Therefore the covenant was unenforceable as the company had already broken the agreement.

The court ruled in favour of the care home company. It stated that there was nothing in the contract preventing it from competing with the franchisee by setting up its own branches. Nor was there anything about a required amount of support that must be offered to franchisees.

The relationship of “good faith” was not implied in the terms of the contract. It would be wrong for the court to accept the franchisee’s claim that the company had broken this relationship of good faith, when such a relationship was never part of the contract.

Please contact Clare Jones if you would like more information about the issues raised in this article or any aspect of contract law and protecting your business.