2 Years and 10 Miles: Federal Court Reviews Franchise Agreement’s Non-compete Clause

By: Sheila Raftery Wiggins

Two years and 10-mile radius = enforceable. The Federal Court in Philadelphia ruled against AAMCO, which sought to enforce the non-compete clause in its franchise agreement, prohibiting a franchisee from engaging in transmission repair within two years from terminating the relationship and within a 10-mile radius. Here, the franchisee sold his franchise and opened a repair business 90 miles away from their former AAMCO location—but 1.4 miles away from another AAMCO location. The court ruled: No violation by the franchisee. LESSON: The non-compete clause should be tailored to address: (1) direct competition and (2) abuse of the franchise system/improper use of trademarks or goodwill.

Sheila Raftery Wiggins, of the Newark office, handles matters involving complex commercial disputes, insurance defense, coverage disputes, financial fraud, and attorney ethics.