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Jonathan Pollard is the principal of Pollard PLLC, a litigation boutique focused on competition law. He has exten- sive experience litigating complex non-compete, trade secret, trademark and antitrust matters. He is licensed in Florida, all Florida federal courts and the U.S. Court of Appeals for the 11th Circuit. Jonathan has been quoted on non-compete and trade secret issues in Bloomberg, the Wall Street Journal, FundFire and others. He has been featured on PBS News Hour and appeared in Inc. Magazine. He has taught multiple CLEs. His articles have ap- peared in Law.com, Law360 and Litigation Commentary & Review.
JONATHAN POLLARD | Competition Law
Franchise Non-Compete Agreements: Mostly
FUnenforceable as Written
or the past several decades, courts McDonald’s in the same exact location, in many jurisdictions have handed but that information is not useful for out injunctions like candy in fran- somebody running a BurgerFi up the
chise non-compete cases. is is, of course, dead wrong.
Here is a great example from my case les. Joe owns ve McDonald’s loca- tions in a high tra c area. Joe decides not to renew his franchise agreement. He gures he can go start some other food business. But according to his franchise non-compete agreement, Joe is prohibited from working in, owning or operating ANY quick service food establishment for three years from the date of termination. According to the McDonald’s franchise agreement, that includes Wendy’s, Chipotle, Smoothie King, Subway, Starbucks and more. Let’s run this through the legitimate business interest framework.
Suppose Joe goes across the street and starts a BurgerFi. McDonald’s will scream bloody murder. Joe signed a contract! And now, he’s across the street running a burger place, just like Mc- Donald’s! But how does this implicate any legitimate business interest and threaten unfair competition? Answer: It doesn’t.
CONFIDENTIAL INFORMATION
Con dential information only consti- tutes a legitimate business interest when that information is valuable, truly con- dential, unique to the holder, and the defendant (Joe) could use that informa- tion to gain an unfair advantage. Let’s assume that Joe had access to certain con dential information about meth- ods, strategy, nances, etc.
Numerous other quick service restau- rant chains have the same type of gen- eral/strategic market data.Numerous other quick service restaurant chains have the same type of information about methods, processes, etc.
If McDonald’s has speci c nan- cial data related to, e.g., its sales in various markets, that information might be valuable to someone running a
street. BurgerFi might be a burger joint, but it is a completely di erent product, market level, supply chain, and target demographic. Information about run- ning a McDonald’s is largely irrelevant to someone running a BurgerFi. And it’s even more irrelevant for somebody running a di erent type of quick service food establishment (e.g., a Starbucks).
CUSTOMER RELATIONSHIPS & GOODWILL
McDonald’s cannot plausibly contend that Joe could convert walk-in, retail McDonald’s customers to BurgerFi cus- tomers. Even if McDonald’s magically could make such a showing, they can- not demonstrate that it involves unfair competition or any legitimate business interest. is is all about market reali- ties.
In this context, the market dictates that there are no protectable customer relationships. Customers who want McDonald’s will still get McDonald’s. Customers who want BurgerFi will get BurgerFi. e fact that Joe switches chains does not deprive McDonald’s of any substantial, special, protectable customer relationships. It is not unfairly harming McDonald’s customer good- will. ese are walk-in fast food cus- tomers. ere are no contracts. ese aren’t high-dollar transactions. e relationships are hardly exclusive. Cus- tomers are not making these purchasing decisions based on goodwill. Custom- ers consume lots of food and beverages across multiple vendors. It is a free for all. e market dynamics do not suggest the existence of any protectable custom- er relationships.
TRAINING
Any claimed interest in training is bogus unless the training is truly ex- traordinary and goes beyond the train- ing available elsewhere in the industry.
AALMagazine.com
Lots of companies like to pretend that they have unique, cutting edge training. But most of the time, there is nothing unique or extraordinary about a compa- ny’s training. I have seen this play out in litigation dozens of times. Most corpo- rate training programs are built on other well-established, commercially available training programs. at destroys any claim that the training is extraordinary.
THE UPSHOT OF ALL THIS
e only legitimate restriction here would be a post-term restriction that prohibited Joe from operating a burger joint at the exact same location. But since McDonald’s likely owns the prop- erty, that is impossible. If Joe goes any- where else – even literally across the street – and opens another burger joint, that does not threaten unfair competi- tion. at does not infringe upon Mc- Donald’s con dential information, cus- tomer relationships or any interest in “extraordinary” training.
But it doesn’t stop there. As noted above, McDonald’s considers dozens of restaurants, co ee shops and conve- nience stores to be competitive busi- nesses. It should be abundantly clear by now, McDonald’s is not concerned about preventing unfair competition. McDonald’s is using franchise non- compete agreements to (1) prevent or- dinary competition and (2) prevent franchisees from leaving the company by limiting their post-term business options.
McDonald’s is just one example out of hundreds, if not thousands.
Bottom line: e vast majority of large franchises use incredibly broad franchise non-compete agreements that are unenforceable as written and not necessary to protect
any legitimate busi- ness interest. is is fertile territory for a declaratory judg- ment action.
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