Right at Home — a franchisor of a business-format franchise for providing home care services — secured a major win in enforcing a covenant not to compete. Faegre Drinker represented Right at Home after the now former franchisee of a home care business committed several material breaches of its franchise agreements, including failing to secure required insurance coverage for the franchisor and recording revenue off the books, resulting in underpayment of royalties. The breaches came to light in litigation with a third party, during the course of which Right at Home discovered that the franchisee had been providing care “off the books” through a scheme involving concealing revenue in misnamed accounts, issuance of handwritten invoices and requiring a client’s family to pay for the off-the-books care by separate check.
Faegre Drinker assisted the franchisor with terminating the franchise agreements and, when the former franchisee flipped the signs and continued to operate under a different name, in seeking injunctive relief enforcing the covenant not to compete. Over two days of in-person and remote proceedings, Faegre Drinker presented evidence convincing the court to grant the motion and require the former franchisee to cease operations. The court also denied a motion to dismiss or stay Right at Home’s case.
The covenant not to compete is imperative to the success of franchise systems, so Right at Home considered this to be a must-win case. The federal court adopted Right at Home’s arguments, finding the covenant not to compete to be reasonable and enforceable, necessary to protect the brand and franchise system, and consistent with the public interest in enforcing valid agreements, providing a win for Right at Home and franchising more broadly.
