A Guide to Franchise Non-Compete Clauses in Hong Kong: Can You Start Again After Leaving?

When entering Hong Kong’s franchise market, many prospective franchisees focus on the cost of opening a shop but overlook contractual restrictions on how they can earn a living after leaving. A non-compete clause may do more than prevent you from opening a similar outlet: it could also cover employment, shareholdings or helping another brand. Before signing, establish exactly what you are promising not to do, then assess whether that promise is reasonable and whether it could obstruct your next business venture.

1. No franchise-specific legislation does not mean every restriction is enforceable

Hong Kong currently has no legislation specifically governing franchising. Nor does it have a generally applicable statutory franchise disclosure regime, franchise-specific registration system or mandatory franchise code of conduct. You should therefore not assume that a brand must separately explain its non-compete restrictions to you, or that you will automatically have a statutory cooling-off period after signing.

Franchise agreements are governed by common law principles of contract; non-compete clauses also engage the common law doctrine of restraint of trade. Broadly speaking, the party seeking to enforce a restriction must show that it protects a legitimate interest and is reasonable in scope. The courts will also consider the public interest. A brand’s confidential operational information and customer connections may qualify as relevant interests, but simply wanting to avoid competition does not make any restriction reasonable.

Hong Kong has no universal “safe” duration or geographical radius for restrictions in franchise agreements. Enforceability depends on the particular relationship, business and wording; examples involving employment contracts cannot simply be applied to franchises. Restrictions may also raise issues under the Competition Ordinance (Cap. 619), requiring a separate assessment. Inclusion in a franchise agreement does not automatically make them exempt.

2. Break the restriction down into five elements

Ask the brand for the complete agreement and all schedules and annexes. Identify definitions such as “competing business” and “direct or indirect involvement”, then draw up a one-page checklist:

• Activities: Does the clause only prohibit running a similar outlet, or does it also cover employment, consultancy work, lending and passive investment?
• Products or services: Does the restriction cover the brand’s core products, or the entire food and beverage, beauty or retail sector?
• Geographical scope: Is the restricted area centred on your own outlet, or does it cover all the brand’s outlets, the whole of Hong Kong or even overseas markets? How are online sales treated?
• Duration: Are there separate restrictions during the franchise term and after termination? Does the post-termination period start when the agreement ends, when trading actually stops or when you finish returning the required items?
• People covered: Is only the franchisee company bound, or must shareholders, directors or guarantors give separate undertakings? Are you required to ensure that relatives or associated companies comply?

Pay particular attention to a scope that can change. If the restricted area expands as the brand opens new outlets, the area you understand at signing may differ from the one that applies when you leave. Clauses referring to people who are not parties to the agreement should not automatically be taken as binding on them. However, you could incur liability by promising to “ensure their compliance”, so ask a solicitor to check the wording.

3. Test the clause against real plans, then discuss narrower protection

Do not simply ask the franchisor whether a clause is “standard”. Put forward practical scenarios: perhaps you already own a shop selling similar products, intend to work for another brand after leaving, or hold only a small shareholding in a listed company. Ask the franchisor to confirm in writing whether each scenario is restricted.

If the brand’s main concern is the disclosure of confidential information, discuss clear provisions on confidentiality, the return of information and prohibitions on using confidential material. If it is concerned about customers or staff being poached, discuss precisely who and what conduct a non-solicitation clause would cover. These provisions must themselves be reasonable; they should not merely preserve a blanket ban on competing under a different name.

Discuss the following negotiating points with your solicitor:

• Limit the restricted business to products or services actually supplied that compete with the brand.
• Discuss geographical limits based on the outlet’s actual catchment area, rather than automatically covering every market in which the brand operates.
• Include clear exceptions for disclosed existing businesses, specified investments or particular employment.
• Clarify whether restrictions would still apply if, for example, the franchisor commits a material breach or the brand withdraws from Hong Kong.

Exceptions should be recorded in the formal agreement or a legally effective supplementary document, identifying the companies, businesses and conditions involved. A salesperson saying “we don’t usually pursue these things” is not the same as a waiver of enforcement rights.

4. Factor the cost of the restricted period into your franchise decision

A non-compete restriction is not a fixed franchise fee, but it can still carry a real cost. When assessing it, list the work you could do after leaving, the business you would be unable to take on, and the training and capital needed to move into another line of business. If most of your experience is in similar outlets, a broad restriction may affect you far more than it would a diversified investor.

Also check the consequences of a breach. Could the brand seek an injunction, claim damages or pursue specified contractual sums and legal costs? Do not assume that every stated amount will necessarily be recoverable, or that you can simply “pay for your freedom”. Enforceability and the remedies available depend on the wording and the law.

Before signing, give a Hong Kong solicitor the complete agreement, any personal undertakings and details of your next-step plans to review together. Even if you believe a clause is too broad, it is unwise to sign first and gamble on it being unenforceable. A dispute alone could delay the opening of your next shop and increase your legal costs.

Practical takeaway: Before paying, put down in writing what is restricted, where, for how long, who is bound and what exceptions apply. If a restriction would cut off your main source of income, negotiate a narrower scope or secure an explicit exemption before deciding whether to join the franchise.