Bad Hair Day - English High Court Enforces Restrictive Covenants Against Former Franchisee Of Hair Salon Franchise

In Rush Hair Limited v Gibson-Forbes & Anor, the English High Court considered whether two restrictive covenants relating to non-solicitation and non-competition ("RCs") given by an individual seller of a hair salon franchise in a share purchase agreement were enforceable.

The High Court found for the claimant franchisor, and the judgment serves as a useful and informative discussion on a number of legal principles, such as contractual interpretation, restraint of trade and the enforceability of RCs. Franchisors and franchisee should take note that in franchise re-sales, it may be possible to impose stronger RCs on the seller in the sale documentation than would otherwise be possible in the franchise agreement.

The dispute

The defendant was a franchisee of the hairdressing concept, Rush Hair, having entered into a franchise agreement with the claimant in 2008. Under the franchise agreement, the claimant granted the defendant franchise rights to operate a Rush hairdressing salon in the town of Windsor, UK.

In 2015, the parties agreed for the defendant to sell the business back to the claimant prior to the end of the term of the franchise agreement and entered into a share purchase agreement ("SPA"). Clause 7 of the SPA imposed two RCs on the defendant, namely:

a covenant not at any time during the period of two years from completion of the sale, to canvass, solicit, entice or employ certain key employees from the acquired business.

a covenant not to directly or indirectly be engaged, concerned, employed or interested in any competing business of the Rush concept within a defined territory for a period of two years from completion.

Following completion of the sale of business in July 2016, the defendant established a new company and opened another hairdressing salon in the town of Windsor and also hired one of the key employees of the acquired business. As a result, the claimant brought an action against the defendant alleging a breach of both RCs.

In contesting the claim, the Defendant threw everything but the kitchen sink at the claimant, arguing that the SPA was void for uncertainty, the RCs were narrowly drafted and could not apply to the new business and that in the event they did apply, the RCs were unenforceable on grounds reasonableness and as restraints of trade.

The court's decision

The non-solicitation RC in the SPA was drafted narrowly and applied to the first defendant. The first defendant was a director and shareholder of the...