Is the covenant not to compete in the Engel & Volkers Franchise Agreement, which extends beyond termination, always enforceable under California law?

According to Engel & Volkers's 2025 Franchise Disclosure Document, the enforceability of the covenant not to compete, which extends beyond the termination of the franchise, is not guaranteed under California law. The FDD explicitly states that this provision "may not be enforceable under California law." This means that if an Engel & Volkers franchisee in California were to challenge the non-compete clause in court, there is a possibility that the court would deem it unenforceable.

This uncertainty arises from California's general disfavor of non-compete agreements, especially those that restrict a person's ability to work in their chosen profession after the franchise relationship ends. California Business and Professions Code generally invalidates contracts that restrain anyone from engaging in a lawful profession, trade, or business. There are limited exceptions, such as the sale of a business or dissolution of a partnership, but these may not always apply to franchise agreements.

For a prospective Engel & Volkers franchisee in California, this could be seen as a potential benefit. If they were to leave the franchise system, the non-compete might not prevent them from engaging in similar real estate activities. However, it also introduces uncertainty, as the franchisor may still attempt to enforce the clause, leading to potential legal disputes. It is important for potential franchisees to consult with legal counsel to understand the specific implications of the non-compete clause in their situation and the likelihood of its enforceability in California.

It's also worth noting that the Engel & Volkers Franchise Agreement requires the application of New York law, but the FDD indicates that this provision also "may not be enforceable under California law." This adds another layer of complexity, as a California court might apply California law despite the agreement's choice-of-law provision. Therefore, franchisees should seek legal advice to determine how these clauses interact and what their rights and obligations are under California law.