A non-disparagement clause is a contractual provision that restricts what a franchisee can say publicly about a franchisor. These clauses appear in many franchise agreements, though the scope and enforceability of a non-disparagement clause vary considerably from one system to another. Recent federal guidance has drawn new attention to how far a non-disparagement clause can reasonably extend, and what it can reasonably require of a franchisee.
What a Non-Disparagement Clause Actually Says
A typical non-disparagement clause prohibits a franchisee from making statements that could damage the franchisor’s reputation, brand, or business relationships. The language is often broad, covering public comments, online reviews, social media posts, and statements made to media outlets or industry publications. Some agreements extend the restriction to former franchisees, meaning the clause can remain in effect after a franchise agreement ends, sometimes for a period defined separately from any non-compete provision in the same agreement.
The Federal Trade Commission has taken the position that a non-disparagement clause should not be used to prevent a franchisee from reporting a suspected legal violation to a government agency. This guidance treats reporting to regulators as separate from ordinary public criticism, even though many franchise agreements do not draw that distinction explicitly in their own language. The guidance is a policy statement rather than a binding rule, so it signals how the agency views these provisions without changing the text of any existing franchise agreement.
What a Non-Disparagement Clause Does Not Cover
A non-disparagement clause generally does not prevent a franchisee from discussing the franchise relationship truthfully in a legal proceeding, responding to a lawful subpoena, or cooperating with a government investigation. Courts have also been reluctant to enforce these provisions where a franchisee’s statements involve matters of public concern, such as health and safety issues, though the outcome depends heavily on the specific language of the agreement and the jurisdiction involved.
It is a common misconception that a non-disparagement clause prevents any negative statement a franchisee might make, including private conversations with other franchisees or family members. Most clauses are aimed at public statements rather than private communication, though the exact boundary depends on how broadly the provision is drafted and how a particular franchisor has chosen to enforce it in practice.
How a Non-Disparagement Clause Differs From a Confidentiality Clause
A non-disparagement clause and a confidentiality clause are often confused, but they address different concerns. A confidentiality clause protects specific proprietary information, such as trade secrets, financial data, or operational methods, from being disclosed to third parties. A non-disparagement clause, by contrast, addresses the tone and content of public statements rather than the disclosure of protected information.
A franchisee could comply fully with a confidentiality clause while still violating a non-disparagement clause simply by posting a critical review that discloses no protected information. Understanding this distinction matters because the two provisions are typically enforced differently and may carry different consequences for a breach, even when they appear in the same section of a franchise agreement.
Why a Non-Disparagement Clause Matters
Online reviews and social media have become significant factors in how prospective franchisees and customers evaluate a franchise system, which raises the practical stakes of a non-disparagement clause considerably. A franchisee who leaves a negative review during an active dispute with a franchisor could face a claim that the review itself breaches the agreement, independent of whether the underlying complaint has merit. This risk applies across platforms, from a short social media post to a detailed review on a public business directory.
Because federal guidance in this area is a policy statement rather than a binding rule, a non-disparagement clause remains primarily a matter of contract language and state law. Reviewing the specific wording of a non-disparagement clause before signing, and understanding how broadly it is drafted, gives a franchisee a clearer sense of what public statements may create exposure later in the relationship.
Summary
A non-disparagement clause restricts what a franchisee can say publicly about a franchisor, though the scope varies by agreement. Federal guidance suggests these clauses should not block reports of legal violations to regulators, but the provision otherwise remains largely governed by contract language and state law. A non-disparagement clause is distinct from a confidentiality clause, addressing public tone rather than protected information. Reviewing this language carefully before signing helps a franchisee understand what statements could create risk later in the relationship.
Franchise agreements vary in how broadly they define a non-disparagement clause, and the specific terms of any agreement will determine what statements are restricted. If you have questions about non-disparagement provisions in general, you are welcome to reach out to the team at FortmanSpann.
The choice of a lawyer is an important decision and should not be based solely upon advertisements. Prior results do not guarantee a similar outcome. This post is for informational purposes only and does not constitute legal advice. Franchise laws vary by state, and the information in this post may not reflect the laws applicable to your specific situation.