FRANCHISE LAW
How Franchise Non-Compete Clauses Work
A franchise non-compete clause restricts you from running a competing business — during the franchise term and, more importantly, for a set period and area after it ends. Its purpose is to stop a former franchisee from using the system’s training, customers, and know-how to compete against the brand the day after leaving. Whether a given clause is actually enforceable comes down to state law and whether the restriction is reasonable, not to any federal rule. This matters most at exit, so understand the clause before you sign and again before you leave.
This article explains how these clauses are structured, what makes them stick, and where federal and state law stand in 2026.
Watch — Franchise Terms — Noncompetes:
In-Term vs. Post-Term Non-Competes
Franchise agreements usually contain two different restrictions, and they’re treated very differently.
The in-term non-compete bars you from operating a competing business while you’re an active franchisee. Courts rarely have trouble with this one — you can’t run the brand and a competitor at the same time, and enforcement is straightforward.
The post-term non-compete is the clause that causes disputes. It restricts what you can do after the franchise ends — typically barring a similar business within a defined radius for a fixed number of years. This is the provision that can keep you out of the industry you know best, so it’s the one to scrutinize.
What Makes a Post-Term Non-Compete Enforceable
Enforceability turns on reasonableness under the law of the state that governs your agreement. Courts generally weigh four things:
| Factor | What courts look for |
|---|---|
| Duration | A defined, limited period (often one to three years post-term) |
| Geography | A reasonable area — near the former territory, not nationwide |
| Scope | Restricting a genuinely competing business, not all work |
| Legitimate interest | A real interest to protect: trade secrets, goodwill, the system |
A clause that is reasonable on all four is more likely to be enforced. One that is overly broad — too long, too wide, or sweeping in unrelated work — risks being narrowed or struck down. Because the standard is reasonableness and not a bright line, outcomes vary by state and by the specific facts, which is why these clauses are so often litigated.
The FTC’s Non-Compete Rule Collapsed — and Never Covered Franchises Anyway
You may have heard that non-competes were banned. That’s not the current law. In April 2024 the FTC issued a rule to ban most non-competes, but a federal court set it aside nationwide in Ryan LLC v. FTC (N.D. Tex., Aug. 2024). The FTC then voted to abandon its appeals in September 2025 and, following a January 2026 workshop, confirmed it would not pursue a categorical national ban. As of mid-2026, there is no federal non-compete ban in effect — the agency can still challenge individual agreements case by case under its general authority, but the blanket rule is gone.
Two points specific to franchising are worth keeping straight:
- The FTC rule never reached franchise non-competes. Even as written, the rule’s definition of “worker” expressly excluded a franchisee in the franchisor-franchisee relationship, reasoning that it’s more like a business-to-business relationship than employment. So the franchisor-franchisee non-compete was outside the rule from the start.
- Employees are different. The rule would have applied to non-competes that a franchisee or franchisor imposes on their employees. Those are governed by ordinary employment-non-compete law, which is where the real restrictions live today.
The takeaway: franchise non-competes are, and have always been, a question of state contract law — not the FTC rule.
State Law Is What Actually Decides
Because there’s no federal ban, the governing state’s law controls. States fall along a spectrum. A handful — California, North Dakota, Oklahoma, and Minnesota — void virtually all employee non-competes, and Washington enacted a near-total ban signed in March 2026 (taking effect in 2027). Many other states enforce non-competes only above wage thresholds or under specific conditions.
Be careful drawing conclusions from those bans, though: most target employee non-competes, and their application to a franchisor-franchisee covenant is a separate, fact-specific question. Some states that limit employee non-competes still enforce reasonable franchise covenants; others are hostile across the board. The only reliable answer comes from analyzing your specific clause under your specific governing-law state — ideally before you sign and again before you exit.
Alternatives Franchisors Use
Even where a non-compete is weak, franchisors protect themselves through related clauses you should read with equal care: non-solicitation provisions (barring you from poaching customers or staff), confidentiality and trade-secret protections, and trademark-use restrictions. These often survive even when a broad non-compete would not, so don’t assume a questionable non-compete leaves you unrestricted.
Understanding these clauses fits into the bigger picture of franchise agreement mistakes to avoid before you sign and, when a relationship is ending, franchise default and cure provisions. For broader counsel, see the firm’s franchise law practice.
Frequently Asked Questions
Are non-compete clauses in franchise agreements enforceable?
Often, yes — if they’re reasonable. Courts assess duration, geographic scope, the type of business restricted, and whether the franchisor has a legitimate interest to protect. Overly broad clauses may be narrowed or struck down, and a few states sharply limit them.
Did the FTC ban franchise non-competes?
No. The FTC’s 2024 non-compete rule was struck down nationwide and abandoned by the agency in 2025, so no federal ban is in effect. Even as written, the rule excluded the franchisor-franchisee relationship, so franchise non-competes were never covered.
How long do franchise non-competes usually last?
Post-term restrictions commonly run one to three years and apply within a defined area near your former territory. Longer or broader restrictions are more vulnerable to challenge, but the limit depends on your governing state’s law.
Can I open a similar business after leaving a franchise?
It depends on your clause and your state. A reasonable post-term non-compete may block a directly competing business for a time, while non-solicitation and confidentiality terms may still apply even if the non-compete is weak. Get the clause reviewed before you act.
Know what your non-compete really restricts before you make a move. Reidel Law Firm helps franchisees navigate post-term restrictions and plan a clean exit — talk through your options.
