Non-compete clauses in franchise agreements: what to check before buying

When you join a franchise network, you usually commit to protecting its knowledge and interests. A non-compete clause can serve that purpose, but it can also make it harder to run another business or return to trading independently. Before buying a franchise, check more than just how long the restriction lasts. Equally important are who it covers, how it defines competition and what it allows you to do after the relationship ends.

1. Establish exactly what you are prohibited from doing

Do not judge a clause by its heading alone. Restrictions may be spread across the agreement, its schedules, a confidentiality undertaking and the network’s rules. Ask the franchisor to identify every provision concerning competing activities, along with any documents that could alter their scope.

Translate each restriction into practical scenarios. Can you continue running your existing shop? Become a partner or shareholder in another business? Provide consultancy services? Sell products online that partly overlap with the network’s range? A broad expression such as “any competing activity” does not give you a sufficient answer.

In particular, check:

• What the restriction covers: specific goods and services, or every area of the franchisor’s business, including future activities?
• The type of involvement: running your own business, employment, consultancy, shareholdings or even passive investment?
• The geographical scope: the premises, the town or city, the whole country, or online sales across borders?
• Who the provisions cover: just the franchisee, or also partners, shareholders, directors and close relatives?

Simply naming a family member in an agreement does not make them a party to it. However, the wording may seek to make you liable for certain actions by other people. A lawyer should assess this arrangement separately, rather than assuming that it is necessarily enforceable or unenforceable.

2. Distinguish freedom of contract from legal limits

Poland has no separate statute comprehensively regulating franchising. A franchise agreement remains an “unnamed contract”: one without its own specific statutory framework, based in part on the principle of freedom of contract under Article 353¹ of the Polish Civil Code. That freedom has limits: the agreement’s terms and purpose must not conflict with the law, the nature of the legal relationship or the principles of social coexistence.

Non-compete clauses are also subject to Poland’s Act on Competition and Consumer Protection and, where the conditions for its application are met, EU competition law. An important reference point is Commission Regulation (EU) 2022/720 on the block exemption for vertical agreements. This exemption allows certain agreements to benefit from protection from the prohibition on anti-competitive agreements, subject to the conditions set out in the legislation.

There is no simple rule that every one-year restriction is lawful and every longer restriction is automatically invalid. Non-compete obligations of indefinite duration or exceeding five years generally fall outside this block exemption, although the rules contain specific provisions and exceptions. Falling outside the exemption calls for an individual assessment; it does not automatically mean the clause is invalid.

Nor should you apply employment law rules directly. A business operator entering into a franchise agreement is not automatically entitled to the compensation available to an employee subject to a post-employment non-compete restriction. You can, however, propose payment for restricting your business activities during negotiations.

3. Assess post-termination restrictions separately

A restriction that applies after you leave the network may have the greatest impact on your ability to earn a living. Establish whether it takes effect however the agreement ends: on expiry, following notice, by mutual agreement or because of breaches by the franchisor.

Regulation 2022/720 provides a narrow route for such a restriction to qualify for the block exemption. It must relate to competing goods or services, be limited to the premises and land from which the franchisee operated during the agreement, be indispensable to protecting the know-how transferred, and last no more than one year after the relationship ends. All these conditions must be met, and the exemption also depends on compliance with the regulation’s other requirements.

This does not mean the network must let you copy its methods after a year. Confidentiality obligations and trade secret protection are separate issues. Poland’s Act on Combating Unfair Competition may protect information that meets the statutory criteria, independently of any restriction on running a competing business.

Ask the franchisor to explain exactly what know-how justifies the restriction. A general reference to “protecting the network” is no substitute for assessing whether the restriction is necessary and proportionate.

4. Negotiate exceptions and plan your next business steps

Before signing, tell the franchisor about your existing business activities, shareholdings and realistic plans. Record any exceptions in the agreement or a signed schedule. A recruiter’s verbal assurance that “it won’t be a problem” may not be enough if a dispute arises.

During negotiations, propose:

• a precise, exhaustive definition of competing activities;
• exclusions for specified existing business activities and passive investments;
• limiting the restriction to what is necessary to protect the knowledge transferred;
• a procedure for obtaining written consent for a specific activity;
• the option of being released from the restriction after the relationship ends, on clearly defined terms.

Prepare a simple exit plan too: how you will earn a living, which resources you can use and how long the restriction will affect your income. Give this plan to your lawyer, together with the full set of relevant provisions. Reviewing a single sentence containing the non-compete obligation may overlook important connections with other terms.

Practical takeaway: sign only when you can clearly explain which business activities you may carry out both during the franchise relationship and after it ends. Resolve any ambiguities in the wording of the agreement before investing your money.