Free is Not a Violation of a Franchise Non-Compete Covenant

The enforceability of a non-competition covenant is based on state law.  Generally, and perhaps uniformly, non-competitions are disfavored under the law.  Hence they are very narrowly construed. 

Restrictive covenants on employment may not be used to bar individuals from entire fields of work simply to limit the employer’s competition.

e.g., RLM Commc’ns, Inc. v. Tuschen, 831 F.3d 190, 196–97 (4th Cir. 2016)

A case out of Maryland involving Senior Helpers provides a real-life example[i].  Franchisee signs a Senior Helpers franchise agreement barring the use of Senior Helpers confidential information and engaging in a competitive business post the termination of the franchise agreement.  Competitive business under the franchise agreement is defined as Any home health care or in-home care agency or business that offers or provides non-medical care, companionship services, personal assistant services.

 Franchisee sales its Senior Helpers franchise to another franchisee and starts a business offering  dementia care training and consultation to senior care facilities and family members of individuals with dementia.

[A} a non-compete provision restricting a former employee from working directly with similar businesses was overbroad and thereby unenforceable because the restriction was not tethered to actual work the employee had performed for the employer)

Seneca One Finance, Inc. v. Bloshuk, 214 F. Supp. 3d 457, 461-62 (D. Md. 2016)

Senior Helpers sues for the breach of the non-competition.  In promoting its services and  preparing treatment plans, Senior Helpers includes information and education about dementia.  Hence,  dementia care training and consultation to senior care facilities and family members of individuals with dementia is a violation of the non-competition.

The court rejected this deduction.  Senior Helpers franchises offer companionship services and assistance.  Senior Helpers offers dementia education free to promote its services, and  incorporated dementia education into their treatment plans without charging.  Senior Helpers does not charge for dementia education.  Senior Helpers cannot bar others from selling and competing based on a service they do not charge. 

[i] SH Franchising, LLC d/b/a, Senior Helpers v. Newlands Homecare, LLC, et at. Civil Action No. CCB-18-2104 Business Franchise Guide – Explanations, Laws, cases, rulings, new developments ¶16,353