Enforcing post-termination noncompetes against California franchisees: A changing landscape

Post-termination and post-expiration noncompetes involving California franchisees have historically been viewed as difficult to enforce under California law, with courts and practitioners often interpreting California Business and Professions Code Section 16600 as barring such covenants. Many franchisors did not pursue enforcement of post-term noncompetes involving California franchisees, on the understanding that California franchisees could allow their agreements to expire or terminate and then begin competing in the same territory – drawing on the goodwill, customer relationships, and confidential information associated with the franchisor’s brand and system.

Recent decisions have called that view into question. In BrightStar Franchising, LLC v. Foreside Management Co., 808 F. Supp. 3d 870 (N.D. Ill. Oct. 29, 2025), the Northern District of Illinois enforced post-expiration restrictive covenants against a California franchisee, applying Illinois law (the contractually chosen law) instead of California law over the franchisee’s objections.

DLA Piper Partner Norman M. Leon (Chicago) and Of Counsel Bethany L. Appleby (Boston) represented the franchisor. The decision joins a growing line of rulings holding that franchise noncompetes – including post-termination and post-expiration covenants – are not per se invalid under California law and may be enforceable following the California Supreme Court’s 2020 decision in Ixchel Pharma, LLC v. Biogen, Inc.

The traditional approach to Section 16600

California Business and Professions Code Section 16600 provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Courts historically interpreted this provision as invalidating post-termination and post-expiration noncompete obligations. The statute was generally understood to reflect a fundamental public policy of California that choice-of-law provisions in franchise agreements or other commercial contracts could not override.

This interpretation could limit a franchisor’s ability to restrict a California franchisee’s competition after the franchise relationship ended. A franchisor might invest years building a market alongside its California franchisee – developing clientele, providing training materials, establishing goodwill – only to have the franchisee decline to renew and compete in the same territory, serve the same customers, and use the same phone numbers. Without an enforceable noncompete, the franchisor had limited, if any, recourse..

Ixchel Pharma: The California Supreme Court narrows Section 16600

In 2020, the California Supreme Court issued its decision in Ixchel Pharma, LLC v. Biogen, Inc., which changed the analysis. The court clarified that Section 16600’s per se invalidity rule applies to employer-employee noncompetes. For contractual restraints arising in the context of “business operations and commercial dealings,” the court held that a “reasonableness standard” applies instead.

For franchisors, the Ixchel Pharma court specifically referenced franchise agreements as the type of commercial arrangement to which the per se rule does not automatically apply. That reasoning has supported arguments that franchise noncompetes – even those applicable after termination or expiration – may be enforceable under California law if they are reasonable in scope.

BrightStar Franchising, LLC v. Foreside Management Co.: Testing the theory in court

BrightStar Franchising, the franchisor behind BrightStar Care in-home care agencies, has more than 400 franchise locations and has been in business for more than 20 years. Foreside Management Company operated BrightStar franchises at two locations in Southern California.

Each franchise agreement contained an Illinois choice-of-law provision and post-termination covenants that barred the franchisee from competing in its former territory, soliciting customers, and using BrightStar’s confidential information and marks. The franchisee was also required to transfer telephone numbers.

After the franchise agreements expired in July 2025, BrightStar alleged that Foreside began competing in the same territory, including by serving former BrightStar clients and referring to its experience as a BrightStar operator. BrightStar filed suit two days later and moved for a preliminary injunction.

The court’s key holdings

Judge Mary M. Rowland of the United States District Court for the Northern District of Illinois granted BrightStar’s motion for a preliminary injunction. The court’s ruling includes several holdings relevant to franchise practitioners:

• Franchise relationships are commercial, not employment relationships. Citing Ixchel Pharma, as well as statutory definitions of “franchise” under both the Illinois Franchise Disclosure Act of 1987 and California’s Franchise Relations Act, the court held that franchise relationships are business relationships – not employment relationships. The fact that the franchise agreements contained standard “independent contractor” language did not convert the relationship to employment for purposes of Section 16600; rather, that language addressed agency principles.
  
  
• Ixchel Pharma extends to post-termination covenants. The franchisee argued that even if Ixchel Pharma applied to in-term covenants between commercial parties, it should not apply to restrictions that survive termination. The court rejected this argument, finding nothing in the Ixchel Pharma decision to suggest that its reasoning would not extend to post-termination covenants. The court followed a growing line of federal district court decisions reaching the same conclusion.
  
  
• No actual conflict of laws existed. To overcome the Illinois choice-of-law clause in the franchise agreements, the franchisee bore the burden of demonstrating that a true conflict existed between Illinois and California law. Because both states apply a reasonableness standard to commercial noncompetes (post-Ixchel Pharma), the franchisee could not demonstrate that California’s approach would produce a different outcome. The court therefore applied the agreements’ Illinois choice-of-law provision as written.
  
  
• The covenants were reasonable. Applying Illinois law, the court found BrightStar’s restrictive covenants reasonable on three grounds: they protected legitimate business interests – goodwill, clientele, and confidential information developed over a decade-long franchise relationship; the geographic scope was tailored to the actual franchise territory; and the 18-month duration was an appropriate time to allow competitive advantages to dissipate and to permit a replacement franchisee to establish itself.
  
  
• BrightStar established irreparable harm. The court found that BrightStar demonstrated irreparable harm, such as lost customers, exposure of proprietary information, and erosion of goodwill. It noted that violations of noncompete covenants are the “canonical form of irreparable harm.” The court also credited BrightStar’s argument regarding the “ripple effect” across its franchise system. If one franchisee can breach post-termination obligations without consequence, other franchisees could take notice.

Practical takeaways for franchisors

BrightStar Franchising, LLC v. Foreside Management Co. highlights several considerations for franchisors operating in or with franchisees located in California:

• Reasonableness analysis for post-term covenants. After Ixchel Pharma, franchise noncompetes – both in-term and post-termination – are subject to a reasonableness analysis, not a per se bar. Franchisors may wish to evaluate these provisions in light of the governing law in California.
  
  
• Enforceability of choice-of-law provisions. An Illinois (or other non-California) choice-of-law provision may be enforced when the opposing party fails to demonstrate an actual conflict between the chosen state’s law and California’s reasonableness standard.
  
  
• Precision in drafting. The covenants in BrightStar were enforced in part because they were carefully tailored: the geographic restriction tracked the actual franchise territory (defined by zip codes plus a 25-mile radius), and the 18-month duration was tied to the time needed for competitive advantages to dissipate.
  
  
• Timing of enforcement. BrightStar filed suit within two days of the franchise agreements’ expiration and moved for injunctive relief shortly thereafter. Prompt action may have supported its request for preliminary relief.
  
  
• Documentation of post-termination conduct. BrightStar was able to present evidence of the former franchisee’s immediate competitive activity, such as continued use of customer relationships, telephone numbers, and brand recognition, because it monitored and documented the conduct beginning when the franchise agreements expired.
  
  
• Potential system-wide impact. The court credited the argument that unenforced post-termination obligations send a signal to the franchise system as a whole. When seeking injunctive relief, franchisors may wish to explain how a single breach could affect the expectations of the entire franchise network.

Looking ahead

For franchisors who have assumed that California law makes their post-termination or post-expiration protections unenforceable with respect to California franchisees, the decision offers a reason for franchisors to reconsider those assumptions. The ruling underscores the relevance of well-drafted agreements; prompt, well-documented enforcement actions; and having evidence that supports the requirements for obtaining preliminary relief.

For more information, please contact the authors.