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Non-compete clauses are useful in franchise agreements and are designed to prevent franchisees from competing during the term and after the franchise relationship ends. For franchisors, non-competes protect the brand and maintain customer goodwill in the territory left behind when a franchisee leaves.
However, trends on both sides of the United States-Canada border show that franchisors can no longer assume these clauses will hold up. Since July 1, Virginia has banned most post-term non-competes in new franchise agreements, while Canadian courts continue to scrutinize them on a case-by-case basis.
For franchisors that operate in both countries, one standard non-compete is no longer enough. Clauses should be tailored to each jurisdiction and backed by other contractual protections.
Canadian franchisors can still use non-competes, but enforcement depends primarily on the clause's wording. The franchisor must show the clause is clear, protects a genuine business interest, and has a justified geographic area and duration. Courts will not rewrite a poorly drafted clause to save it.
In F45 Training Canada Limited v. 2685802 Ontario Limited, 2025 ONSC 7357, the franchise agreement prohibited the franchisee from operating a similar or competitive business for two years within the franchised territory or 10 kilometers of another F45 location.
The court found that, while the duration and geographic area were clear, the restricted activities of the non-compete were not, rendering it unenforceable. The definition of the “franchised business” was open-ended and partly depended on an operations manual the franchisor could change at will.
On appeal, 2026 ONCA 775, the appellate court held that the non-compete was unenforceable because the range of restricted activities was broader than required to protect the franchisor’s legitimate proprietary interest. However, the appellate court found that the non-solicit clause was enforceable but required the extent of the franchisee’s breach to be remitted back to the lower court for determination.
In Chatters Limited Partnership v Chatters Deerfoot Meadows Limited, 2025 ABKB 536, the franchise agreement prohibited the former franchisee from operating a similar business at the location of the former salon or within a 10-mile radius of the former salon for two years after the agreement ended.
The court found that a non-compete cannot be broader than reasonably necessary to protect a legitimate business interest. The two-year duration and restricted activities were reasonable, but the 10-mile radius from the former salon was not because the franchisor could not demonstrate any interest worthy of protection. The court then declined to enforce the restriction.
In Keller Williams Realty v. VIP Realty Inc., 2025 ONSC 7152, the franchise agreements prohibited the franchisees from competing with the franchisor during the term. The franchisees purported to terminate their agreements and join a competing real estate franchise system.
The court found the agreements remained in force and that the franchisees continued to benefit from them. The franchisor had lost two major franchises with potentially larger impacts to its franchisee network generally. This strong evidence of harm supported enforcement of the non-compete for the duration of the franchise agreement.
As of July 1, amendments to the Virginia Retail Franchising Act prohibit new franchise agreements from restricting a franchisee from competing after the relationship ends. A limited exception allows a restriction of up to two years where a franchisee voluntarily sells its franchise at a mutually agreed price. Covered agreements must also be governed by Virginia law, and franchisors selling in Virginia must update their disclosure documents.
Existing agreements are not affected, although it remains unclear whether a renewal or amendment would bring an older agreement under the new rules. Protections for confidential information, trade secrets, and non-solicitation remain available.
Canada and Virginia have taken different routes to similar practical results. The real difference is predictability: Virginia franchisors know the rule and can plan around it, while Canadian franchisors face less certainty. Here are the key takeaways:
Non-competes still have a role in protecting franchise systems, but their effectiveness should not be assumed. Early attention to drafting, evidence, and jurisdiction-specific rules can help franchisors protect their brands and avoid costly surprises.
Jennifer Shayko is a franchise lawyer with Aird & Berlis LLP.