Post-termination restraints in UK franchise agreements are not automatically enforceable. Courts test every clause for reasonableness on its own facts, and the Court of Appeal’s ruling in Dwyer (UK Franchising) Ltd v Fredbar Ltd confirms there is no blanket rule that a 12-month covenant will stand. What follows explains the case, the legal test, and what franchisors and franchisees should each do about it.
What the Dwyer v Fredbar case decided
The dispute centred on a 12-month post-termination non-compete clause in a franchise agreement, and it moved through two stages that franchisors now treat as a benchmark.
At the High Court, judges found the restraint unreasonable on the specific facts and refused to sever the offending parts, in Dwyer (UK Franchising) Ltd v Fredbar Ltd [2021] EWHC 1218 (Ch). The reasoning pointed to geographic overreach, an absence of demonstrable goodwill in the wider area the clause tried to protect, and inequality of bargaining power between the franchisor and the franchisee who signed it.
The Court of Appeal upheld that approach, making clear that a 12-month restriction is not reasonable by default and must be judged against what the franchisor actually needs to protect.
- The clause failed because it covered territory beyond where the franchisor had established goodwill.
- Inequality of bargaining power weighed against the franchisor, particularly given the franchisee’s relative inexperience.
- The restriction had not been tailored to reflect the actual duration the franchise operated before termination.
The practical lesson for anyone drafting or signing a UK franchise agreement is that a restraint copied from a template carries real risk if it has not been matched to the facts of that particular franchise relationship.
How courts test whether a restraint of trade is reasonable
English law starts from a settled position: a restraint of trade is prima facie unenforceable, and the burden sits with the party trying to enforce it, almost always the franchisor, to show it goes no further than necessary to protect a legitimate interest. That interest is usually goodwill or confidential business information, not simply a wish to stop competition.
Judges weigh several factors together rather than applying a single test:
- Does the franchisor have a legitimate interest worth protecting, such as goodwill built in that territory or confidential systems and know-how?
- Is the duration proportionate to how long it would take a departing franchisee to stop being a competitive threat?
- Is the geographic scope limited to areas where the franchisor can show actual trading presence or customer relationships?
- Was there a meaningful imbalance in bargaining power when the agreement was signed?
- Did the timing or manner of termination affect what protection is genuinely justified?
- Could an unreasonable part of the clause be severed, leaving a narrower restriction standing?
- Is there evidence, such as territory-specific marketing spend, that ties the claimed goodwill to the restricted area?
Franchisors carry the burden of proving a restraint is reasonable, not the franchisee defending against it, a point the Court of Appeal ruling reinforced when it rejected the idea that 12 months is a safe default. Commentary following the judgment has stressed that courts look closely at whether a standard-form restraint was imposed on an inexperienced franchisee, since that imbalance attracts closer scrutiny than a negotiated agreement between equals.
A quick way to apply this: ask whether the clause protects something the franchisor can point to with evidence, rather than something it simply prefers to stop happening.
Drafting restraints that actually hold up in court
Franchisors updating their standard agreements after Dwyer have a clear set of practical levers available, and most of them cost nothing beyond careful drafting.
- Tier the restraint so its duration reflects how long the franchise actually traded, rather than applying a flat period to every exit.
- Confine geographic scope to territory where goodwill and customer relationships can be evidenced, and avoid a broad radius clause unless trading data justifies it.
- Build in narrow, named exceptions, such as passive shareholding or a limited financial interest, so the clause does not catch activity that poses no real threat.
- Record how the clause was negotiated, especially with a first-time franchisee, so there is a paper trail showing it was explained and understood rather than imposed.
- Lean on complementary protections, such as confidentiality undertakings and tightly drawn customer non-solicitation terms, instead of a sweeping non-compete.
Pro Tip: Keep a short written note of any negotiation over restraint terms, even a single email exchange. It is often the clearest evidence of bargaining power when a clause is later challenged.
Franchisors reviewing their own agreements against this list may also find it useful to read our guide on making restrictive covenants enforceable after Dwyer, which sets out how to apply these principles to an existing franchise network.
What to do if a franchisor is enforcing a restraint against you
Franchisees facing a notice of breach or a threatened injunction have more room to manoeuvre than it might feel like at the time, provided they act methodically.
- Preserve every relevant document: the signed agreement, any disclosure materials, correspondence about support levels, and dates of key events.
- Get specialist franchise or commercial legal advice promptly, rather than making unilateral decisions about the business.
- Avoid simply walking away from the franchise, since that step can itself trigger claims and weakens your negotiating position.
- Identify negotiation levers early: a shorter restricted period, a narrower geography, a limited licence back, or a modest payment in exchange for an agreed release.
- Weigh the realistic costs and timescale of litigation against a negotiated exit, since most disputes of this kind settle before trial.
Pro Tip: Keep a running record of any representations made by the franchisor during recruitment. If support or territory promises were not honoured, that evidence can strengthen your negotiating position considerably.
Practical guidance on this point is consistent: walking away from a franchise without documenting the dispute or negotiating a proper exit tends to leave franchisees more exposed, not less. Our own overview of franchise agreement termination covers the wider process alongside restraint-specific issues.
Exit deeds and what they should cover
An exit deed is the document that usually settles what happens when a franchise relationship ends outside the ordinary term, and it can work in either direction: preserving a restraint the franchisor still needs, or narrowing one that would otherwise be disputed.
- Mutual releases, with carve-outs for unpaid sums or fraud that survive the deed regardless.
- Confirmation of which obligations survive termination, including confidentiality and trademark or IP arrangements.
- Arrangements for stock or equipment buyback where relevant to the business being handed back.
- Any agreed adjustment to the restrictive covenant, such as a shorter period or smaller territory than the original agreement specified.
Practical guidance on franchisee exit deeds warns against overly broad releases and against leaving the deed unclear about which document governs if it conflicts with the original agreement. A well-drafted deed avoids both problems and gives each side certainty about what remains enforceable.
FAQ
What are the three conditions of a franchise agreement?
Franchise agreements vary, but most UK agreements centre on three core elements: the licence to use the franchisor’s trademark and business system, the fees payable by the franchisee, and the obligations each side owes, including territory rights, support, and restrictive covenants. The exact wording differs between franchisors, so the specific terms always need reading in full rather than assumed from a general template.
How do I get out of a franchise agreement in the UK?
Most franchise agreements set out a formal termination process, often requiring written notice and a chance to remedy any breach before the agreement ends. Where a franchisee wants an earlier or cleaner exit, negotiating an exit deed that confirms surviving obligations is usually a safer route than walking away unilaterally.
How does a franchise work in the UK?
A franchise arrangement grants an individual or company the right to trade under an established brand and business system in exchange for fees, typically an upfront payment plus ongoing royalties. The franchisor usually provides training, marketing support and operating standards, while the franchisee runs the day-to-day business within the territory and terms set out in the agreement.
Does Tesco use franchising?
Tesco has used franchise-style arrangements for certain smaller-format convenience stores in some markets, though this differs from the independent franchise model found across most UK franchise sectors such as home services, food and business services. Readers looking for established franchise opportunities across those sectors can compare options through a directory of UK franchises.
Sources
For the primary legal position, the full judgments are available through BAILII, alongside practitioner commentary on restraint of trade principles. Readers exploring franchise ownership can browse trending UK franchise opportunities.