November 01, 2017

Requiring Franchisees to Have Their Employees Execute Non-Competes and Confidentiality Agreements—Good or Bad Idea?

Jaime Paoletti

Reprinted with permission from The Franchise Lawyer, Fall 2017 (20:4), at 9-11. © 2017 American Bar Association. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

Franchisors routinely require franchisees to agree to confidentiality agreements and post- termination non-competition agreements. The purpose of non-compete and confidentiality agreements is to protect the franchisor’s marks and system from misappropriation. For similar reasons, some franchisors require franchisees to have their employees sign confidentiality and post-employment non-compete agreements as a condition of employment. When used appropriately, these agreements may help franchisors ensure that the knowledge obtained by franchise employees is not misappropriated. In theory, this practice benefits both franchisors and franchisees. The franchisor maintains control over its system and marks, while the franchisees benefit from the franchisor’s support, information, and training. But, is this practice a good or bad idea? Analysis of this question is colored by the tensions between trademark law, which requires a franchisor to exercise adequate control over its marks, the views of worker advocates, and the shifting tide of joint employment jurisprudence.

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