Franchising in Greece: limits on non-compete clauses

When turning an existing business into a franchise network, it is natural to want to protect what you have built. However, a blanket ban preventing a franchisee from carrying on any similar activity indefinitely is not a safe solution. In franchising, protecting know-how requires a clearly defined scope, proportionate limits and legal review before the agreement is presented to the first prospective franchisee.

1. Identify exactly what you want to protect

Before asking for a non-compete clause, set out which business interest is at risk. Is it a production method that is not publicly known? A tried-and-tested system for organising services? Or simply a fear that a franchisee might one day open another business?

This distinction affects the contractual approach. Confidentiality obligations, restrictions on the use of know-how and non-compete obligations are not the same thing. The first restrict disclosure of information, the second its use, and the third business activity itself. They should not be treated as interchangeable tools.

Prepare a brief internal table covering:

• the information or method you provide,
• why it is not generally known,
• its usefulness in running the outlet,
• how it is documented and shared,
• the specific risk you want to prevent.

For example, a standard customer service technique does not become protected know-how simply because it has been written down in a manual. By contrast, a substantial, secret and identified body of practical knowledge calls for more careful protection. Documentation should come before the restriction, not be assembled after the event.

2. Understand the Greek and EU framework

In Greece, there is no dedicated law providing a comprehensive framework for franchising, nor a specific law requiring pre-contractual disclosure for these agreements. The general rules of the Greek Civil Code apply, including those on freedom of contract, good faith and the prohibition of abuse of rights. Articles 197 and 198 address good faith in negotiations and pre-contractual liability.

Restrictions on competition are also assessed under Greek Law 3959/2011 and, where its conditions of application are met, Article 101 of the Treaty on the Functioning of the European Union. For vertical agreements, Regulation (EU) 2022/720 and the accompanying guidelines are key reference points.

The Regulation provides a block exemption subject to conditions; it is not a blanket approval of every term in an agreement. Under its general framework, non-compete obligations of indefinite duration or lasting more than five years are excluded from the exemption, subject to specific provisions and exceptions. Tacit renewal also requires careful consideration of whether there is a genuine opportunity to renegotiate or withdraw.

Losing the benefit of the exemption does not automatically make a clause invalid. It means that an individual assessment is required. In franchising, this also involves examining whether the restriction is genuinely necessary to protect the know-how being shared or the identity of the network.

3. Draft separate terms for the contract period and what follows

Do not combine a ban on competing activities during the agreement with a ban applying after the relationship ends in a single sentence. These are different situations requiring different assessments.

For the contract period, specify which products or services are considered competitive and which activities are covered. Wording such as ‘any related activity’ leaves excessive room for interpretation. Also distinguish between actively managing a competing business and simply holding a passive investment, rather than automatically treating them as equivalent.

For the post-contractual period, the exemption under Regulation 2022/720 sets narrow conditions, all of which must be met: the restriction must relate to competing goods or services, be limited to the premises and land from which the buyer operated, be indispensable to protecting the know-how transferred, and last no longer than one year.

This does not automatically justify a one-year ban covering the whole of Greece. Nor does it mean that every one-year clause is valid. Restrictions on using or disclosing know-how that has not entered the public domain may be treated differently and need to be drafted separately.

4. Have the clause reviewed before using it

Give your legal adviser the facts: what you provide to the franchisee, which activities they already carry on, where they will operate and which risk you are trying to limit. A ready-made clause from another network does not establish that the restriction is necessary for your own business model.

Present the restriction to the prospective franchisee in good time, with a clear explanation of its consequences. The European Code of Ethics for Franchising supports full and accurate written pre-contractual disclosure within a reasonable period; it is a self-regulatory framework, not Greek law. Also check whether any contractual penalties are proportionate and compatible with the applicable law.

Practical takeaway: first identify the know-how, then the actual risk, and only then the restriction. The best clause is not the strictest, but the one that demonstrably protects the business without placing unjustified constraints on the franchisee.