Judge says franchisee breached reasonable and enforceable non-solicitation clause
Allowing the appeal of a franchisor of group fitness training studios focusing on high-intensity interval training, the Ontario Court of Appeal considered the franchise agreement’s non-competition clause unreasonable and unenforceable, but found its non-solicitation clause reasonable and enforceable.
The case was F45 Training Canada Limited v. 2685802 Ontario Limited, 2026 ONCA 775. Respondents C. Skeates and W. Skeates were the sole directors of respondent 2685802 Ontario Ltd (268).
In March 2019, the appellant franchisor and 268 executed a five-year franchise agreement, subject to renewal. Under the agreement, franchisee 268 would run a group fitness training studio in Whitby, Ontario, under the F45 brand.
C. Skeates and W. Skeates signed the franchise agreement as guarantors of 268’s obligations.
The respondents opened the group fitness training studio – referred to as “F45 Whitby West” – in a Whitby mall in November 2019.
On Oct. 22, 2024, the respondents informed the appellant that they did not plan to renew the franchise agreement, which was going to expire in November 2024.
That same month, the respondents signed a new franchise agreement with The Yard Gym (TYG) and extended the lease term over the mall premises.
In promotional emails and text messages sent to customers, the respondents addressed their business “rebranding” and offered to trade F45 memberships for TYG memberships.
The respondents posted an online funding request to convert the Whitby West F45 studio to TYG.
Before the Ontario Superior Court of Justice, the appellant applied for a permanent injunction to enforce the restrictive covenants in the franchise agreement. The appellant asserted that the respondents:
Until the application hearing, the respondents agreed to refrain from launching the TYG Whitby business until Mar. 1, 2025, and from taking additional steps to market the business to former customers until then.
On Mar. 14, 2025, Justice Myrna L. Lack of the Superior Court refused to enforce the franchise agreement’s restrictive covenants against the ex-franchisee.
In making her decision, the application judge said both the non-competition and non-solicitation clauses were ambiguous about the scope of restricted activities. Given this finding, she declined to rule on the reasonableness of either clause.
The appellant alleged that the application judge made reversible errors in considering the clauses unenforceable for ambiguity, as they both had a clear meaning when properly interpreted.
The appellant wanted the appeal court to carry out the second part of the relevant analysis and conclude that the respondents breached both restrictive covenants, which were reasonable.
The respondents countered that the judge committed no reversible error in interpreting the restrictive covenants. Alternatively, the respondents wanted the appeal court to remit the issue of the reasonableness of the restrictive covenants to the Superior Court.
The Ontario Court of Appeal granted the appeal.
The appeal court ruled that the application judge erred in finding the restrictive covenants unenforceable for being ambiguous, without first interpreting the clauses in the context of the entire franchise agreement and the surrounding circumstances.
Using the appropriate interpretation, the appeal court saw no unresolved ambiguity in terms of the scope of restricted activities.
The appeal court found the non-competition clause unreasonable and unenforceable, given that the range of restricted activities was broader than necessary to safeguard the appellant’s legitimate proprietary interests.
Regarding the appellant’s argument that the application judge committed a legal error by applying the employment law presumption of unenforceability to the restrictive covenants, the appeal court deemed it unnecessary to address the issue for this appeal.
Upon considering the disputed passage of the judgment, the appeal court clarified that the application judge did not adopt the heightened scrutiny standard under employment law when deciding whether the restrictive covenants were enforceable.
The Ontario Court of Appeal deemed the non-solicitation clause reasonable and thus enforceable.
Based on the evidence, the appeal court acknowledged that the respondents had violated the non-solicitation clause. However, the appeal court considered the record inadequate to rule on the extent of the respondents’ breaches and the proper remedy.
Thus, the appeal court remitted these issues to the Superior Court for determination.
Last September, the appeal court confirmed an employment relationship between an animation corporation and a gaming studio head, as the latter had signed an employment agreement, received a salary and benefits, and had income tax deducted at source.
In two wrongful dismissal actions, the appeal court issued an August ruling in the employers’ favour upon finding that the employment contracts’ termination provisions met the minimum entitlements required under the province’s Employment Standards Act, 2000.
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