Can a beverage franchise head office include punitive damages in the franchise agreement to prevent franchisees from running a similar business after the contract ends?
According to the Tai Cha No.1 franchise agreement:
“Without the franchisor’s prior consent, the franchisee may not operate, invest in, be employed by, or in any way participate in or advise any third party in operating a similar business.
If violated, under Article 18, Clause 1, the franchisee must pay NT$500,000 in punitive damages and compensate for any losses. The franchisor also has the right to terminate the contract.”
In Practice, a Valid Non-Compete Clause Generally Requires:
1. Protection of the franchisor’s intellectual property;
2. A time limit of within 2 years, even if no clear geographical restriction is stated;
3. The franchisee must not engage in a same or similar business;
4. Providing compensation for the restriction is not required.
In This Case:
The former franchisee opened a tea shop called “Pin Cha Fang” 8 km away after ending the franchise agreement, but the business was operating at a loss.
The court ruled to reduce the punitive damages to NT$250,000.
The law protects those who understand it.
Where there is no evidence, there is no win.
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