Buying a Franchise in South Africa: Non-Compete Checks

A franchise agreement can shape more than the business you are buying. Its non-compete clauses, often called restraints of trade, may also affect your existing investments and how you earn a living after leaving the brand. Before joining South Africa’s franchising community, check exactly which activities are restricted, who is bound and how long those restrictions last.

1. Understand the legal starting point

South Africa regulates franchise agreements through the Consumer Protection Act 68 of 2008 (CPA) and its regulations. It is therefore misleading to treat franchising as unregulated simply because there is no standalone Franchise Act.

Section 7 of the CPA requires a franchise agreement to be in writing, signed by or on behalf of the franchisee, and expressed in plain and understandable language. The regulations prescribe information that the agreement must contain, including restrictions imposed on the franchisee. Regulation 3 requires the franchisor to provide the prescribed disclosure document at least 14 days before the agreement is signed.

Use that review period to obtain advice on restraints, rather than treating them as standard wording that cannot matter until later. Section 48 of the CPA also prohibits unfair, unreasonable or unjust terms.

Restraints of trade are additionally assessed under South African common law. They are not automatically invalid because they limit someone’s ability to work. Enforceability depends on the circumstances, including whether the restraint protects a legitimate interest and whether its scope is reasonable. A franchisor may seek to protect confidential know-how or customer connections, but that does not make every restriction enforceable.

Ask a South African attorney experienced in franchise matters to assess the actual wording. Do not build your purchase decision around an assumption that a court will eventually set it aside.

2. Map the activities and people covered

Start by locating every restraint, not just the clause headed “non-compete”. Restrictions may also appear in definitions, schedules, confidentiality undertakings or separate documents signed by directors.

Ask your attorney to identify whether the agreement restricts:

• Owning or operating a competing business.
• Working for, advising or financing a competitor.
• Holding shares in another business, including passive investments.
• Approaching customers or recruiting employees.
• Helping another person establish a competing operation.

These restrictions do different jobs. A ban on operating a similar outlet is not the same as a ban on soliciting customers, and neither should be accepted without understanding its boundaries.

Next, identify who must comply. The franchisee company may be bound, while directors or shareholders may be asked to give separate personal undertakings. Do not assume that signing only in a representative capacity creates the same obligations as signing personally.

Disclose your existing business interests before signing. If you already own a related business, obtain a clear written exclusion where appropriate. A sales representative’s verbal reassurance is not a reliable substitute for agreed contractual wording.

3. Test the scope against realistic situations

Assess the restraint across three dimensions: activity, geography and duration. Read them together, because a restriction that appears modest in one respect can become very broad when combined with the others.

Activity: Does “competing business” mean the specific products or services offered by the franchise, or almost anything serving similar customers? Could it cover work that does not use the brand’s confidential information or customer relationships?

Geography: Is the restriction tied to your outlet’s trading area, every location operated by the network, or the whole country? Ask how online trading and customers outside your immediate area would be treated.

Duration: Does the restraint apply only while you operate the franchise, or continue afterwards? Identify the event that starts any post-agreement period and whether different provisions use different dates.

There is no universal period or radius that is automatically reasonable for every franchise. Test the wording against your own circumstances: selling the outlet, taking employment elsewhere, retaining another business or starting a genuinely different operation. Ask your attorney to explain which scenarios create material risk.

4. Resolve the restriction before committing

Turn concerns into specific written requests. Depending on the business, these might include a narrower definition of competition, a defined geographical boundary, permission for an existing investment or an exclusion for passive shareholdings.

Ask why each restriction is needed and what interest it protects. This helps distinguish a focused safeguard from wording that unnecessarily limits your future livelihood.

Have your attorney check that any agreed exception appears consistently across the agreement and related undertakings. Also establish what remedies the franchisor could seek for an alleged breach, including urgent court relief, and what defending a dispute could involve.

Practical takeaway: Before signing, be able to explain in plain language what work you cannot do, where, for how long and in which personal capacity. If those answers threaten your existing income or realistic future plans, resolve the wording before buying.