Franchise non-competition enforcement in Canada: A guide for franchisors

What is a non-competition restriction? 

A non-competition restriction in a franchise agreement seeks to prevent a franchisee from operating a competing business during or after the term of the agreement. These clauses often restrict the former franchisee from running a similar business within a defined geographic area for a specific period of time after leaving the system. 

Franchise agreements usually contain non-competes that: 

• Restrict the franchisee from owning or operating a similar business within a certain radius from the location of the franchise or from the outer boundaries of the protected territory (e.g. 5 or 10 km), and similarly within a similar radius from the location of any other franchised location.
   
• Apply during the term of the agreement and for one or two years after expiry or termination of the franchise agreement.
   
• Cover both direct and indirect involvement in a competing business.
   
• Extend to shareholders or spouses if they participated in the competing business. 

Franchise non-competes are typically meant to protect an entire business model, brand, and territory—not just confidential information. That said, they are not always legally enforceable. 

The enforceability of these clauses depends on how they are drafted and how courts interpret the surrounding facts. Courts balance a franchisor’s interest in protecting its brand with a general desire to limit restraints on trade. If the restriction is too broad in geography, time, or scope, it may be struck down completely—even if only one part is unreasonable. 

In the franchise context, courts assess the enforceability of non-competes on a spectrum between non-competes in pure commercial arrangements (such as in a sale of a business) and in employment relationships. However, some franchisees are unsophisticated and can be sometimes viewed more like consumers (or employees) rather than business owners. That factor can affect how courts interpret these clauses in certain scenarios. So even if your agreement looks enforceable on paper, the context of the industry and nature of the system and the franchisee can matter. 

When is a non-compete clause legally enforceable? 

In Canada, franchise non-compete clauses are enforceable only if they are carefully drafted and strictly aimed at protecting the franchisor’s legitimate business interests. Courts generally either uphold these clauses entirely or strike them down completely—they will not rewrite overly broad or flawed provisions. 

Key factors for enforceability 

Canadian courts examine three primary factors when determining whether a non-compete clause is enforceable: 

1. Geographic scope:
   The restriction must directly relate to where the franchisor operates or intends to operate. Overly expansive geographic limitations, such as province-wide restrictions when the franchise only operated locally, are likely to be invalid.
2. Duration:
   Time limits should be commercially reasonable—typically not exceeding two years post-termination. Restrictions beyond this are rarely upheld, with a one-year duration being most common and reasonable.
3. Scope of activities:
   The clause must clearly and specifically outline the type of business or the goods and services restricted. Restrictions must directly relate to the franchise’s business activities, avoiding vague or overly broad language.

For example, a clause preventing a former franchisee of a smoothie shop from operating any food business across the province for five years is likely unenforceable. However, a one-year restriction on operating a clearly defined smoothie business within a defined and limited geographic radius has a much better chance of being upheld.  

Common reasons non-compete clauses fail 

Despite good intentions, non-competition restrictions often fail because they are drafted too broadly or rely on generic templates that do not reflect Canadian legal standards. Courts require these clauses to be precise, reasonable, and commercially justifiable. Frequent reasons clauses are unenforceable include: 

• Geographic restrictions exceeding the actual franchise operating territory. 

• Excessive durations beyond what is commercially necessary. 

• Broad or vague descriptions of restricted activities unrelated to the original franchise operations. 

Judges also closely evaluate the fairness and balance of power between the franchisor and franchisee. If a franchise agreement reflects significant inequality or is presented as a “take-it-or-leave-it” proposition, courts may scrutinize the enforceability of the non-compete more rigorously.  

Additional factors affecting enforceability 

Certain specific circumstances can also render non-compete clauses unenforceable: 

• Poor conduct by the franchisor:
  Improper termination or unfair practices by the franchisor can lead courts to refuse enforcement based on principles of fairness.
• Lack of evidence of harm:
  If a franchisor cannot adequately demonstrate that competition from a former franchisee is causing genuine harm to the franchise system or brand, a court may deny enforcement, especially regarding injunction requests.
• Delayed action:
  Delays in enforcement actions can indicate to the court that harm is not urgent or could be sufficiently remedied by monetary damages, thereby weakening the franchisor’s position. 

Best practices for franchisors 

To maximize enforceability and reduce risks: 

• Tailor the geographic, temporal, and activity-related restrictions specifically to legitimate business needs.
• Document and justify the necessity of each restriction clearly at the drafting stage.
• Act promptly and consistently to enforce violations when they occur. 

By proactively addressing these aspects, franchisors significantly improve their chances of enforcing non-compete clauses effectively.  

Seeking an injunction to enforce the non-compete clause

To enforce a non-competition restriction, franchisors typically start by issuing a cease-and-desist letter to the former franchisee, clearly outlining the breach and demanding an immediate halt to competing activities. If the franchisee disregards this notice, the franchisor may consider initiating legal proceedings, with an injunction being the primary goal. 

The legal test for an injunction 

An injunction is a court order prohibiting specific actions—in this case, operating a competing business. Obtaining a temporary (interlocutory) injunction requires satisfying a stringent legal test, which involves demonstrating: 

1. Serious issue:
   The non-compete clause must appear commercially reasonable and legally enforceable, with evidence showing a clear breach by the franchisee.
2. Irreparable harm:
   Franchisors must provide evidence that monetary damages alone would not adequately remedy the harm inflicted on their brand, system integrity, or market reputation if the franchisee continues competing.
3. Balance of convenience:
   The harm suffered by the franchisor and franchise system without the injunction must outweigh the potential harm to the franchisee if the injunction is granted.

Importance of timeliness and evidence 

Timely action and robust evidence are crucial. Delayed enforcement actions weaken claims of urgency and harm. Courts closely examine franchisors’ past conduct, and inconsistent enforcement can undermine a case. Detailed and concrete evidence significantly improves the likelihood of securing an injunction. Examples of effective evidence include: 

• Social media posts, customer reviews, and online business listings. 
• Witness statements from customers or employees. 
• Franchisee communications (emails, texts) demonstrating intent or acknowledgment of competition. 

Franchisees may argue they are not competing by altering business names or slightly changing concepts. However, if the core aspects—products, customer base, or location—remain substantially similar, courts are more likely to recognize a breach. 

Challenges in obtaining an injunction 

Injunctions are viewed by courts as extraordinary remedies, not easily granted. Courts strictly apply the legal test and look beyond mere contractual breaches. Common pitfalls for franchisors include: 

• Failure to adequately demonstrate “irreparable harm” or insufficient evidence showing damage to the brand’s reputation or franchise system. 
• Delayed or inconsistent enforcement, suggesting less urgency or harm. 
• Overbroad clauses (in geography, duration, or scope), causing courts to reject the clause entirely rather than modify it. 

The process for obtaining an injunction 

Securing an interlocutory injunction involves thorough planning, preparation, and rapid execution, typically following these steps: 

• Phase 1: Investigate the breach thoroughly and gather substantial evidence (e.g., photos, customer reports, web listings). 
• Phase 2: Issue a cease-and-desist letter and prepare detailed affidavits and supporting documents. 
• Phase 3: File necessary court documents and schedule an injunction hearing. 
• Phase 4: Respond to the franchisee’s materials, conduct witness examinations (as required), handle procedural court or arbitration challenges, and proceed with the court hearing. 

Injunction hearings are evidence-intensive, relying significantly on affidavits, exhibits, and potentially cross-examinations (depending on the province). Success relies heavily on clear, fact-based evidence—not assumptions or generalized claims about brand harm. 

If the injunction is denied 

Even if a court denies an interlocutory injunction, franchisors can still pursue a longer-term legal strategy to protect their brand and recover damages. In such cases, franchisors should strengthen their evidence for subsequent trial or arbitration proceedings by documenting: 

• Sales and customer diversion. 
• Confusion among consumers or suppliers indicating franchise system affiliation. 
• Misuse of proprietary methods, supplier relationships, or brand identity. 

Additionally, franchisors should consider revising and refining their non-compete clauses in future agreements to enhance enforceability and better protect their interests. 

Alternative strategies if an injunction or non-compete fails 

Even if a non-compete clause is unenforceable or an injunction is denied, franchisors still have options to protect their brands: 

• Trademark enforcement: Initiate trademark infringement or passing-off claims if the former franchisee continues using your logos, slogans, product names, or visual branding. 

• Confidentiality clauses: Enforce surviving confidentiality provisions if the former franchisee misuses proprietary information, operations manuals, or unique business methods. 

• Digital platform takedowns: File takedown requests with online platforms (e.g., Google Maps, Instagram, Facebook) if your brand or trademarks are improperly used. 

Law Works can help 

Whether you’re a franchisor or a lawyer representing one, Law Works can advise you on how to enforce non-competes, respond to rescission notices, or litigate franchise disputes. Contact Ben Hanuka at Law Works to protect your system with a practical legal strategy tailored to franchise realities.

Law Works offers complimentary initial 15-20 min telephone consultations, which you can book online.

The information contained in this article is provided for informational purposes only and does not constitute legal advice. Readers should not act on this information without seeking professional legal advice from a lawyer experienced in this area. The content in this article may not reflect the most current legal developments, and the application of law can vary in different provinces and territories. As such, the information in this article is not guaranteed to be complete, correct, or up to date. The author and the publisher of this article disclaim all liability for any actions taken or not taken based on any or all of the contents of this site.  

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