Protecting your market and goodwill; post-termination restrictions and stepping rights upheld

Post-termination restrictions on agents, distributors and franchisees are an important way to protect goodwill and customer relationships that have developed as a retail network expands. Stopping a former member of a retail network from competing for a period of time to secure the goodwill and customers in their former retail territory can be vital to protect the network’s integrity.

Franchisors (in common with the operators of networks of distributors and agents) often seek to protect themselves through a combination of post-termination restrictive covenants and, in appropriate circumstances, a right to step in and take over the premises and items employed by the business. This then allows franchisors to provide continuity of service to customers.

However, as a relationship starts to unravel, there can be circumstances that arise or past unresolved complaints that lead to assertions of breaches of contract — giving the potential for the post-termination restrictions to be void. In a recent decision of the High Court — Carewatch Care Services Ltd v Focus Caring Service Ltd and Others [2014] — Mr Justice Henderson had to consider the enforceability of standard post-termination restrictions, as a matter of common law and under principles of EU competition law, against a background of alleged breaches on both sides. He also had to consider whether an implied duty of good faith should be implied into the franchise agreement whose breach might justify dis-applying the restrictive covenants…

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