Non -competition clause in franchise contracts

the non-competition clause provided for in a franchise contract often establishes that the franchisee will be forbidden to participate in any commercial establishment Let it be a direct competitor of the franchised units, the franchisor, the franchise network or that is inserted in the same business, under penalty of payment of fine and indemnity for loss and damage. That is, this clause aims to protect the franchisor's know-how, as well as to avoid the use of privileged information detained by the franchisee due to the existing relationship, linking it to the obligation not to compete with the franchisor for a certain period.

Although they are considered limiting rights, non -competition clauses must be interpreted not to harm free competition and the principle of free initiative, fundamental elements for the Brazilian economy. From this, we emphasize the importance of establishing contractually (i) the period of the obligation to non-competition, which may even remain in force for a period after the termination of the contract; (ii) the territory in which the franchisee may or may not practice activities that may be characterized as competitors; (iii) the amount provided for the fines and any applicable monetary correction rates; (iv) specific establishments or conduct that may be characterized as competitors of the franchisor; (v) among other forecasts applicable and relevant to the reality of the business.

Given this, it is essential that franchising system companies review their contracts to ensure their effectiveness and compliance with the reality of their business. In addition, a careful analysis of non -competition clauses is essential to preserve the integrity of the franchise network and avoid potential disputes.