How Should Non-Compete Clauses Be Drafted in Franchise Agreements?

When preparing to franchise your existing business, you may want to prevent the business model you have developed from being used by a direct competitor. However, a clause that prohibits all competing activity, everywhere and indefinitely, is not a safe solution. Sustainable franchise relationships depend on clearly defining the interests to be protected and keeping restrictions proportionate. Rather than copying a non-compete clause from a template agreement, tailor it to your business’s actual needs.

1. First, identify the activities you want to restrict

The first step is to define the prohibited conduct precisely. A franchisee opening another business that offers similar products to the same customers presents a different risk from investing in a non-competing business. Simply stating that the franchisee “must not engage in similar business activities” leaves considerable room for conflicting interpretations.

Prepare a list of activities for your legal adviser. Identify your business’s core products or services, the alternatives available to customers, and any proprietary operating methods the franchisee may learn. Assess ownership of a competing business, management of a competing business and consultancy work for a competitor separately.

For example, for a brand operating a particular food concept, prohibiting all food-related activities could impose a restriction far broader than the business model it seeks to protect. By contrast, directly managing a business that serves the same customer need with the same product range may present a more specific risk.

Preparation task: Create a short table with the headings “Know-how to protect — conduct posing a risk — proposed restriction”. Each restriction should have a clear commercial justification. If you cannot explain the justification, reconsider whether the restriction is genuinely necessary.

2. Understand the Turkish legal framework

Türkiye has no dedicated franchise law that comprehensively regulates franchise agreements. Nor is there a specific franchise agreement registration system or a general requirement to provide a standardised pre-contractual disclosure document. This does not mean that parties are free to agree unrestricted contractual terms.

The Turkish Code of Obligations No. 6098 establishes freedom of contract and its limits, while the Turkish Commercial Code No. 6102 provides the relevant commercial provisions and rules on unfair competition. The principle of good faith and the principles of pre-contractual liability are also important. Non-compete clauses must also be assessed under Article 4 of Law No. 4054 on the Protection of Competition.

One of the key instruments governing vertical relationships is Communiqué No. 2002/2 on Block Exemption for Vertical Agreements, together with the associated guidelines. The block exemption provides a framework that exempts agreements meeting certain conditions from the prohibition in Article 4 of the Law; not every franchise agreement automatically qualifies.

Market shares, the agreement’s other provisions and the nature of the restriction must be assessed together. Falling outside the block exemption does not, in itself, mean that a clause is necessarily invalid; an assessment for individual exemption may be required. Legal review therefore needs to go beyond checking the duration clause.

3. Define the limits of the restriction during the agreement

For a non-compete obligation that applies during the agreement, clearly state its duration, scope and the party bound by it. A long-term franchise agreement does not mean that a non-compete obligation of the same duration automatically benefits from the block exemption.

Under Communiqué No. 2002/2, non-compete obligations of indefinite duration or exceeding five years generally do not benefit from the block exemption. However, considerations relating to the protection of know-how transferred within the franchise relationship and the network’s common identity, as well as the Communiqué’s specific exceptions, require separate examination. Taking the view that “we have specified five years, so it must be compliant” is not sufficient either.

When drafting, answer the following questions:

• Which competing products or services does the restriction cover?
• Does the franchisee already operate other businesses?
• How will renewal or extension affect the restriction’s actual duration?
• Could a narrower restriction provide the same protection?

Do not assume that an agreement signed by a company automatically binds its shareholders and directors personally. If separate obligations are proposed for these individuals, their scope, signature requirements and legal validity must be assessed separately. Non-compete obligations for the franchisee’s employees are subject to different rules; do not simply copy the same clause into employment contracts.

4. Address post-termination restrictions in a separate clause

A non-compete obligation that applies after the agreement ends is different from one that applies during the relationship. Under the Communiqué’s block exemption framework, post-termination restrictions are subject to narrow conditions that must be met together.

The restriction must relate to activities competing with the goods or services covered by the agreement, be limited to the premises and land from which the franchisee operated, be indispensable to protecting the transferred know-how, and last no longer than one year after the agreement ends. Merely specifying “one year” does not satisfy the other conditions.

In particular, do not confuse provisions such as “the franchisee may not conduct similar business anywhere in Türkiye” with this narrow framework. Whether the know-how to be protected is secret, substantial and identified is also important to the assessment. The same justification for protection cannot be advanced for general professional experience or widely known working methods.

Keep confidentiality obligations separate from non-compete obligations as well. Preventing the disclosure of know-how that has not entered the public domain is different from prohibiting competing activity altogether.

5. Establish a workable process for alleged breaches

Set out in the agreement how a breach should be notified, what documents will be used to assess it and what legal remedies may be available. Rather than creating an automatic penalty or termination mechanism triggered by a single online post, establish a process that allows the allegation to be verified.

Including a contractual penalty does not make an unlawful non-compete obligation valid. Ask your legal adviser to check how the penalty, termination and damages provisions interact. Before the agreement is signed, explain the scope of the obligation clearly to the prospective franchisee.

Practical takeaway: Rather than inserting a broad prohibition into the first draft, list the know-how to be protected and the specific competitive risks. Then have the narrowest effective clause drafted in terms of activities, duration, location and the persons bound by it. Have restrictions during the agreement and those applying after it ends reviewed separately.