SW Legal studies in Business

Franchisor Could Enforce Non-Competition Clause Against Former Franchisee
Description Appeals court upheld a trial court holding that a franchisor could enforce a two-year, twenty-five mile operating area non-competition clause against a former franchisee that he had agreed to as part of the franchise agreement. The terms were reasonable so that the parent company could maintain its value in the market.
Topic Business Organizations
Key Words Franchises; Non-competition; Breach
C A S E   S U M M A R Y
Facts Servpro is a franchise operation that has over 900 franchisees who operate under the Servpro name. Pizzillo signed a franchise agreement to operate a Servpro cleaning and restoration business; he operated his business under the name "Servpro of Fort Lauderdale." He paid $36,000 for the franchise. He paid Servpro a royalty fee based on a percentage of gross revenues generated monthly. The agreement stated that he would not divert any customers to a competitor and that he would not work with a competitor in any capacity within 25 miles of his service area for up to two years after termination of the franchise. Pizzillo ended the agreement after four years, owing Servpro $4,000, and went to work for his wife, who had started a competing business in the area. Servpro sued for the amount due and for breach of the noncompete clause, asking the court to enjoin Pizzillo from violating the agreement. The trial court agreed with Servpro, ordering Pizzillo to pay the money due and to stop working for the competition. He appealed.
Decision Affirmed. Covenants not to compete are not favored by the law, but they are not invalid per se. They may be enforced when deemed reasonable under the circumstances. Servpro has an interest in protecting the value of the basic product it has to sell: its franchises. If it could not enforce such agreements, the franchises would be worth little. Pizzillo continued to work in essentially the same kind of business, but under a different name. He solicited business from some of his former clients at Servpro. The non-competition clause will be enforced for its term.
Citation Servpro Industries, Inc. v. Pizzillo, 2001 WL 120731 (Ct. App., Tenn., 2001)

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