Franchise / franchisor competition conflict

By Sarah Stowe | 29 Oct 2015 View comments

Question: Can a national franchisor (under a head franchisor) operate their own business under the name of the franchise business or do they have to purchase a franchise?

Answer: What is involved in this situation is competition between the franchisor and the franchisee. The business relationship between a franchisor and franchisee involves mutual obligations and rights. These are primarily found in the franchise agreement but other obligations may be imposed by law such as obligations under the Franchising Code of Conduct. A franchise agreement may contain express terms that prevent a franchisor from competing with the franchisee. The Court may also find implied obligations of good faith that relate to competition between a franchisor and franchisee. 

Any contractual limitation may only operate in the franchisee's territory if the franchise agreement provides the franchisee with an exclusive territory. It may or may not prevent the franchisor from engaging in online businesses either directly or indirectly through subsidiaries. The final answer to the question depends on interpretation of the relevant terms in the franchise agreement and examination of any conduct of the franchisor such as representations made by the franchisor about whether or not, and how, it would compete with its own franchisees, and whether or not it would conduct the same or similar businesses to the franchisees' businesses.