Franchising in Quebec: checking the non-compete clause

Buying a franchise means joining a network with its own methods, know-how and contractual commitments. Among these, the non-compete clause deserves particular attention: it can restrict your activities both while you run the franchise and after you leave. Before signing in Quebec, check exactly what it would prevent you from doing, where and for how long.

1. Identify all restrictions, not just those labelled as such

A non-compete clause generally prohibits certain competing activities. It may cover running a business, working for a competitor, holding a financial stake or providing consultancy services. Its scope depends on its wording: do not assume it only prevents you from opening a rival franchise.

Other commitments can have similar effects without using the same label:

• Non-solicitation, which may restrict approaching customers or recruiting staff.
• Confidentiality, which governs the use and disclosure of protected information.
• Exclusive business commitments, which may restrict your other ventures during the contract.

Ask your lawyer to identify these provisions across all the documents you are expected to sign, including personal undertakings and schedules. Also check whether the contract refers to other documents containing restrictions.

Next, establish who is actually bound: your company, you personally or other signatories. An obligation imposed on the franchisee company should not be confused with a separate personal undertaking.

2. Understand Quebec’s legal framework

Quebec has no franchise-specific legislation requiring a pre-contractual disclosure document under a regime comparable to those in some other Canadian provinces. The general provisions of the Civil Code of Québec apply, particularly those relating to contracts and good faith. Article 1375 requires good faith when an obligation arises, is performed and comes to an end.

The absence of a specific regime therefore does not mean there is no protection. However, you should not assume that you have a statutory cooling-off period specifically for franchise purchases. Arrange your legal review before making any commitment.

The validity of a non-compete clause is assessed by reference to factors including its context, the legitimate interests it seeks to protect and the scope of its restrictions. A commercial clause is not automatically assessed in the same way as one in an employment contract: employment-specific rules should not be applied without examining their relevance.

If the agreement qualifies as a contract of adhesion — broadly, one whose essential terms are imposed rather than freely negotiated — an abusive clause may be examined under Article 1437 of the Civil Code. Whether the agreement falls into this category, and the consequences of that classification, require legal analysis; they do not guarantee that every onerous restriction will be set aside.

Do not sign on the assumption that the clause will later be found invalid. Even a well-founded challenge can take time and incur substantial costs.

3. Test the clause against your actual plans

Turn the legal wording into practical scenarios. For each one, ask for an answer supported by the contract’s wording.

The prohibited activity. Could you run a business offering some similar products without adopting the franchise concept? Work as an employee for a competitor? Hold a minority stake in another business? A very broad definition of competing activity could affect plans you had not considered.

The territory. Does the restriction relate to your premises, your contractual territory or the network’s outlets? How are the boundaries determined? Ask whether new outlets opening could change the area covered in practice.

The duration. Distinguish between obligations that apply during the contract and those that continue after it ends. Check what triggers this second period: expiry, termination or transfer, depending on the wording used.

Your current circumstances. Tell your lawyer about your existing businesses, investments and career plans. Any activity you already carry out should be reviewed before the purchase, rather than emerging as a problem after signing.

Have the financial consequences assessed too: a restriction may reduce your earning options after you leave, even if it does not require any immediate payment.

4. Clarify the limits before committing

Prepare a short list of the changes you would like. Depending on your circumstances, these might include a more precise definition of prohibited activities, a clearly defined territory or an exception for an expressly identified existing activity.

Also ask which obligations continue under the different ways of leaving the franchise. Do not assume that an approved sale or the contract reaching its scheduled end automatically releases you.

Any agreed exception must appear in the appropriate contractual documents. Have these documents checked for consistency: permission granted in a schedule could be undermined by a conflicting provision elsewhere.

Key takeaway: before buying, have the clause translated into a plain-language list of prohibited activities, locations and periods. If that list jeopardises your future career or business plans, clarify or negotiate the restriction before signing.