Franchising: checking the non-compete clause

Before joining a franchise network in Italy, consider what you will be able to do when the relationship ends. A non-compete clause can affect your ability to keep working in the same sector, use your premises or start another business. Checking how many months it lasts is not enough: you need to understand which activities it prohibits, where it applies and whom it binds.

1. Identify the restriction and distinguish it from confidentiality

Start by looking for every provision that restricts competing activities, not just the clause headed “non-compete”. Restrictions may appear in appendices, undertakings required of shareholders or terms governing the end of the relationship.

Distinguish between two periods: during the agreement, the restriction may limit your ability to run other businesses; after the relationship ends, it may stand in the way of a new venture. These are different situations and should be assessed separately.

Confidentiality, by contrast, concerns the protection of information: an obligation not to disclose the know-how you receive does not automatically mean you cannot run a competing business. The obligation to remove signs and branding at the end of the relationship is also separate from a non-compete restriction.

Ask for written answers to three questions:

• Can I keep running other businesses I have already established?
• Can I work for a competing business after leaving the network?
• Can I continue trading independently from the same premises, without using the franchisor’s brand or confidential know-how?

The answers must be reflected in the agreement: a reassurance from the sales team does not override a written prohibition.

2. Understand the applicable rules without making assumptions

In Italy, franchising is governed by Law No. 129 of 6 May 2004, which requires franchise agreements to be in writing to be valid. This law does not impose a general three-year non-compete obligation after the relationship ends. You should therefore not accept such an obligation as a mandatory consequence of Italian franchising law.

The assessment also involves civil law and competition rules. Where applicable, Article 2596 of the Italian Civil Code requires an agreement restricting competition to be evidenced in writing, limited to a defined area or activity, and to last no longer than five years. This limit does not automatically make every five-year clause permissible: competition law and the nature of the relationship must also be considered.

Regulation (EU) 2022/720 provides a block exemption for certain categories of vertical agreements, subject to specific conditions. For post-termination non-compete obligations, the exemption requires, among other things, that the restriction concern competing goods or services, be limited to the premises and land from which the franchisee operated, be indispensable to protect the know-how transferred, and last no longer than one year.

Simply specifying “twelve months” therefore does not automatically make a clause compliant. Conversely, a restriction that falls outside the exemption is not automatically void: it requires an individual assessment. Before signing, have the wording reviewed by a lawyer experienced in commercial contracts and competition law.

3. Work out what the clause means in practice

Broad wording such as “any similar activity, directly or indirectly” can create uncertainty over very different ventures. Ask for the products, services and conduct covered to be clearly defined.

Pay particular attention to:

• Geographical scope: does the restriction cover the outlet, a municipality or a wider area?
• Who is bound: is only the franchisee company signing, or are shareholders and directors also taking on personal obligations?
• Prohibited activities: does the restriction include employment, consultancy or purely financial shareholdings?
• Start date: which event triggers the restricted period?
• Reasons for the relationship ending: does the clause distinguish between expiry, termination by mutual agreement and breach by the franchisor?

Do not assume that the non-compete obligation falls away because you believe the franchisor is responsible for the relationship ending. Its applicability must be checked against the wording and the circumstances.

Then consider a concrete scenario: the franchise agreement ends, but the lease on the shop continues. You could still be paying rent while being unable to use the premises for the business you know best. This is a risk to assess before joining, not just when leaving.

4. Negotiate clear limits before signing

An effective request for clarification is not “remove every protection”, but “let us define the interest that needs protecting and the limits of that protection”. The franchise network has an interest in protecting the know-how it transfers; a prospective franchisee needs to understand the implications for their future independence.

You can propose a more precise definition of competing activities, an express exclusion for existing business activities you have disclosed, and clear provisions governing personal obligations. Every agreed amendment must appear in the documents you sign.

Practical tip: prepare a one-page summary of the prohibited activities, geographical scope, duration, people bound and implications for the premises. If any of these points remains unclear, resolve it with the franchisor and your lawyer before committing.