Nebraska Supreme Court Ruling on Non-Competition Provisions

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Nebraska Supreme Court Ruling on Non-Competition Provisions

Professional cleaning and maintenance service franchisor, Jani-King of Omaha (DBA Unlimited Opportunity, Inc.) sued former franchisee, Anthony Waadah for breach of the non-competition provision of their franchise agreement when Jani-King received reports of Waadah diverting Jani-King customers to his own janitorial business. (Unlimited Opportunity, Inc. v. Waadah, 861 N.W.2d 437 (Neb. 2015). Within the 2-year non-compete Waadah formed a janitorial services company and began servicing several of Jani-King’s client accounts in its old territory. Waadah agreed that, had the franchise agreement been followed, Waadah’s new contracts would have belonged to Jani-King.

Jani-King’s non-competition provision has been condensed into two different restrictions:

  1. Franchisees cannot operate the same or similar business within the territory for 2 years after termination; and
  2. Franchisees cannot operate the same or similar business in any other territory where a Jani-King franchise operates for 1 year after termination.

The court held that the second restriction was unreasonable in geographic scope. Since Jani-King operates on a multi-state and international basis, according to the second restriction, Waadah could theoretically be restricted from competing as far away as Australia.

How did Jani-King lose despite Waadah’s admission?

The Nebraska Supreme Court made it abundantly clear, that it does not “’blue pencil’ rule,” meaning a Nebraska court cannot reform covenants to make them enforceable. The Court stated that “we must either enforce [a covenant] as written or not enforce it at all.” So despite the fact that Jani-King was not attempting to enforce its second restriction and Waadah admitting to violating the first restriction, the overreaching second restriction destroyed the entire provision, leaving Waadah free to compete with Jani-King.

June 22nd, 2015|Uncategorized|