The recent Olympic and Paralympic games manifestly demonstrated, to quote the famous line from ABC’s Wide World of Sports[1] the “thrill of victory” [the US victories over Canada in both men’s Olympic and Paralympic hockey, and women’s Olympic hockey], and the “agony of defeat” [Canada’s defeat by the US in both men’s Olympic and Paralympic hockey, and women’s Olympic hockey]. For the parties involved, motions for injunctive relief often emulate these “thrills” and “agonies”.
Introduction – Injunctions Generally
Interlocutory (also known as Interim) Injunctions are used by parties to a franchise agreement (FA), in a variety of circumstances:
- To prevent a party (in most cases a franchisee) from taking certain actions or engaging in certain conduct, arising from a contractual right that had been previously agreed to by the parties (a “Prohibitive Injunction”); and
- To force a party to take certain action. This often requires a party to take a certain action, or engage in certain conduct, that was not previously agreed to by the parties (a “Mandatory Injunction”).
As lawyers well know, to obtain an interlocutory injunction, the moving party will have to meet the well-established three-part test established by the Supreme Court of Canada in RJR-MacDonald Inc. v. Canada[2] (the "RJR-MacDonald test"):
- Is there a serious issue to be tried?
- Will the moving party suffer irreparable harm if the injunction is not granted; that is harm that cannot be compensated for by monetary damages?
- Does the balance of convenience lie in favor of granting the injunction?
(I) A “serious issue”
Generally, under the first branch of the RJR-MacDonald test, the applicant must establish that there is a serious issue to be tried (the “Serious Issue Standard”). This is a very low standard and only requires that the party’s cause of action or complaint be neither frivolous nor vexatious. This is, generally, the standard that applies in the context of Prohibitive Injunctions.
There are occasions, however, when the applicant will be required to establish a strong prima facie case (the “Strong Case Standard”) in order to obtain the injunction. This is a much higher standard. To satisfy it, the applicant must be clearly in the right. There are two instances in which the courts will require an applicant to meet the Strong Case Standard:
- Where the applicant seeks a Mandatory Injunction; and
- Where the granting of an interlocutory injunction would essentially be a final determination of the issues. For example, this higher test is appropriate where an injunction would “restrain an individual’s cherished ability to make a living and use his or her knowledge and skills obtained during employment”[3].
(II) Proof Of Irreparable Harm
The second part of the RJR-MacDonald test is whether the applicant will suffer irreparable harm, which is harm that cannot be readily quantified in damages. Applicants claiming irreparable harm will be held to a high standard of proof. An applicant cannot just assert principles of general harm in the absence of actual evidence of such harm. Instead, courts now generally take a narrower view and examine whether there is actual evidence requiring protection. The applicant must provide a clear and cogent evidentiary record establishing proof of irreparable harm.
(III) Balance Of Convenience
The third part of the test requires the court to determine which party would suffer the greater harm from the granting or refusal of an injunction, pending a final decision on the merits of the case. This step involves weighing the potential harm to both parties and considering the broader public interest where applicable.
Introduction – Enforcement of Non-Competes in Franchise Agreements Generally
Generally speaking, courts will only enforce covenants against competition where the covenant is, inter alia, reasonable. Cases dealing with the enforceability of restrictive covenants arise along a continuum, from the employment context at one end, in which there is almost no bargaining-power parity between the parties, to the sale of a business on the opposite end, where the parties are usually considered to be of equal bargaining power. While the general legal framework is the same, the level of scrutiny applied by appellate courts in determining whether a restrictive covenant is reasonable will be greater in the employment context than in the commercial context, due to the lesser degree of bargaining power in the employment context. As a generalization, in the franchise context, the level of scrutiny to be applied to a restrictive covenant will depend in part on whether the franchise agreement is truly a contract of adhesion (meaning that the franchisee had little ability to negotiate the agreement). Where the franchisee truly negotiated the franchise agreement, the court will likely be more inclined to apply a level of scrutiny reserved for disputes between vendor/purchaser as opposed to employee/employer.
Prior to determining reasonableness, a threshold issue is whether the restrictive covenant is sufficiently precise to provide certainty to the parties. The Supreme Court of Canada (SCC) in the decision of KRG Insurance Brokers (Western) Inc. v. Shafron[4] (“KRG”), stated that where there is an interpretative ambiguity in the scope of a restrictive covenant, and the principles of contractual interpretation cannot resolve the ambiguity, the clause is per se unenforceable without further analysis, stating: "if the covenant is ambiguous in the sense that what is prohibited is not clear as to activity, time, or geography, it is not possible to demonstrate that it is reasonable".
Also, the common rule of contract law is to construe an ambiguity in a document against the party that drafted it. The ‘contra proferentem’ principle is applied in circumstances where an ambiguity in the document leads to two or more possible interpretations, and the other party did not participate in the drafting of the contract. This certainly applies to franchise agreements which are often described by the courts as contracts of adhesion, in that they are not the subject of free negotiation by parties of equal bargaining power. Evidence as to the bargaining position of the parties at the time the covenant was drafted, whether the franchisee was able to negotiate the agreement, and whether they had independent legal advice, will affect the level of scrutiny to be applied by the court to the question of enforceability.
In determining the enforceability of a non-competition covenant, courts will generally consider the legitimate business interests of the franchisor and the system, and the level of protection required to protect these interests. In particular, in 2016 the Ontario Court of Appeal[5] ruled that a restrictive covenant may not be enforceable if it does not protect the legitimate interests of the party in whose favour it is granted. Therefore, there must be an actual legitimate interest to be protected within the geographical and temporal constraints of the covenant in question.[6]
In general, if the restrictiveness of the covenant is unreasonable—in that it provides the franchisor with more protection than is necessary — the covenant may not be enforceable (MEDIchair at paras 38-40, 47-48). In order to determine the reasonableness of the covenant, the court will consider three factors:
- the geographical restriction covered by the covenant;
- the length in months or years of the covenant; and
- the scope of activity covered by the restriction.
Evaluating the reasonableness of the above factors involves considering both the franchisor’s interests at the time the covenant is entered into (usually when the franchise agreement is executed) and the franchisor’s interests that were reasonably foreseeable at the time the covenant was agreed upon. For example, when assessing the reasonableness of the geographical restriction of a covenant, Canadian courts will consider the reasonable mutual expectations of both parties at the time of making the contract.[7]
This means that if, at the time the franchisee signs a franchise agreement, it is aware that the franchisor reasonably expects to expand to a particular area, the franchisor may protect this area from competition by that particular franchisee, even though the franchisor does not have locations in that area at the time that they enter into the franchise agreement.
Generally, the more narrowly defined the non-competition covenant, the more likely a court will enforce the provision. If a covenant is applicable for too lengthy a period, the geographical area too far-reaching, or the definition of the competitive behaviour that is prohibited is deemed to be too broad in scope, a Canadian court is likely to strike out the entirety of the covenant and will refuse to apply a blue pencil rule (Transport North American Express Inc. v. New Solutions Financial Corp.[8]).
Canadian courts are also unlikely to enforce a non-competition covenant that is longer than two years in duration. However, this is not an absolute rule; the court will determine the acceptable duration of the covenant by assessing the actual protection the franchisor and the system requires to recover from the departure of the franchisee from the system (although the authors are unaware of a non-competition covenant of greater than two years duration that has been enforced within the last ten years).
Further, when a non-compete clause is the product of negotiation between parties, courts may apply a less rigorous standard of scrutiny, which can render an otherwise unreasonable clause enforceable. This principle was evident in Bilomba Inc. v Barrett[9] when the Court assessed the reasonableness of the clause’s geographic scope. Noting that its boundaries had already been modified through negotiation, the Court found that the defendants had limited grounds on which to challenge the enforceability of the geographical scope (even though it was arguable that the covenant’s geographic scope was overly broad).
Finally, a franchisee will occasionally attempt to evade a restrictive covenant by arranging for a third party to own and operate the formerly franchised business. In such circumstances, the parties would collude in an attempt to circumvent the restrictive covenant, assuming that the franchisor will not be able to enforce the restrictive covenant against the third party since it is not a signatory to the franchise agreement. Canadian courts have expressed their disapproval of this approach by enforcing restrictive covenants against non-signatories. For instance, the British Columbia Court of Appeal, in Garcha Bros. Meat Shop v Singh,[10] granted an injunction to enjoin a former franchisee principal’s cousin from operating a similar business with the help of the principal, even though the cousin was a non-signatory to the original franchise agreement. Likewise, in the much earlier decision in Ontario Duct Cleaning Ltd v Wiles[11], the Ontario Superior Court of Justice granted an injunction and classified the defendant’s new business as a “corporate cloak” for the purpose of defeating the non-competition obligations of the former franchisee.
Recent Cases – Did not Cross the Finish Line
Le Groupe Jean Coutu (PJC) Inc. v. Helene Lauzon Pharmacy Ltd.[12] (“Group Cotu”)
In Group Cotu, the plaintiff franchisor Le Groupe Jean Coutu (PJC) Inc. (“Cotu”), sought interlocutory injunctions to force the defendant franchisee, Helene Lauzon Pharmacy Ltd. (“Lauzon”), to either continue operating as a Jean Coutu pharmacy, deliver possession of the premises, or cease operating any business other than a Jean Coutu pharmacy.
Lauzon operated a Jean Coutu pharmacy in Alexandria, Ontario, a town of about 3,000 people for approximately 30 years under a franchise agreement that automatically renewed every five years. On September 2, 2024, Lauzon gave notice of rescission based on alleged failures by Jean Coutu to comply with disclosure requirements under the Arthur Wishart Act (Franchise Disclosure), 2000[13], (the “Wishart Act”) regarding four material changes to the franchise agreement. Lauzon ceased operating as a Jean Coutu pharmacy and began operating as a Pharma Choice pharmacy.
(I) Serious Issue
Jean Coutu argued it was enforcing property and contractual rights requiring only that it meet the Serious Issue Standard of the RJR-MacDonald test. The court rejected this, finding that in substance Jean Coutu sought a mandatory injunction requiring Lauzon to cancel her Pharma Choice agreement, dispose of inventory, and resume operating as a Jean Coutu pharmacy. The court applying the RJR-MacDonald test determined that because Jean Coutu sought mandatory injunctions requiring positive actions, it needed to meet the Strong Issue Standard.
Further, the court found that various changes that were the basis for the rescission claim, were not “frivolous and vexatious” and whether they afforded Lauzon with a right to rescind was something that could only be determined at a trial.
(II) Irreparable Harm
In respect of irreparable harm, the court concluded that since Jean Coutu possessed 30 years of detailed financial records from the Lauzon pharmacy and operated over 400 other franchises, it enabled Jean Cotu to accurately calculate lost profits as damages, and that any loss of goodwill in Alexandria, a town of approximately 3,000 people, would be minimal. The court cited Mondee, Inc. v. Voyzant Inc.,[14] noting that lost customers, sales, and market share can typically be compensated through damages.
(III) Balance of Convenience
Given that the court found that Jean Coutu failed to demonstrate: (a) a strong likelihood of success; and (b) irreparable harm, the court determined the balance of convenience favoured Lauzon, who would suffer greater inconvenience by having to cease Pharma Choice operations and replace inventory, whereas Jean Coutu's damages could be readily calculated and adequately compensated.
The court ultimately dismissed Jean Coutu's motion for interlocutory injunctions, finding that it failed to meet the required legal test on all three grounds.
Recent Cases – Crossed the Finish Line but Did Not Make it Onto the Podium
Chatters Limited Partnership v Chatters Deerfoot Meadows Limited[15] (“Chatters”)
Chatters involved an application by Chatters Limited Partnership (the “Franchisor”) for an interlocutory injunction restraining Chatters Deerfoot Meadows Limited (the “Franchisee”), Tania Larko (“Tania”, and with the Franchisee the “Franchisee Parties”) and The White Rabbit Beauty & Blowout Bar Limited (“White Rabbit” and with the Franchisee Parties collectively the “Defendants”) from owning, maintaining, operating, engaging in or having any interest in any business the same or similar to or directly competitive with the Chatters “Deerfoot Meadows” salon at 8180 – 11 Street SE in Calgary (the “Franchised Business”) and specifically within the municipal area known as Seton, in the City of Calgary.
The history of the relationship between Tania (who was the principal of both the Franchisee and White Rabbit) is somewhat convoluted, but the basis of the injunction application was a breach of the non-compete covenant contained in the franchise agreement amongst the Franchisor and the Franchisee Parties for which a proper FDD was provided.
The Franchisor argued it had strong prima facie case of breach of non-compete covenant arguing that it would suffer irreparable harm if the injunction was not granted, and that the balance of convenience was in its favour. The Defendants argued that the converse: that the Franchisor did not have a strong prima facie case because the non-compete covenant was unreasonable and unenforceable for several reasons, that the Franchisor would not suffer irreparable harm if injunction was not granted, and balance of convenience favours the Defendants.
At the outset, the court concluded, and both parties agreed, that the Strong Case Standard as opposed to the Serious Issue Standard should apply because the interlocutory injunction would serve to finally determine or render at least some of the issues in dispute moot.
(I) Serious Issue
The court found that the wording of the non-compete covenant was unambiguous. However, the court concluded that:
- although the business being operated by White Rabbit was similar to the Franchised Business previously operated by the Franchisee Parties, it was not the “same” or “directly competitive” with the Franchised Business; and
- the Franchisor had not established it had a legitimate or proprietary interest to protect through the non-compete covenant. The court stated that it appeared that what the Franchisor really wanted to do was simply to restrain competition for hair services and sale of retail hair products in an area it had no current interest in, not to protect the Franchised Business but to protect other existing or future applicant salons. This objective did not constitute a legitimate or proprietary interest warranting protection.
(II) Irreparable Harm
In respect of irreparable harm, the court stated that it would have found that, despite the wording of the franchise agreement stating that the Franchisee acknowledges that a breach of the non-compete covenant “will result in irreparable injury”, the Franchisor had not established any irreparable harm by virtue of one-off breach of franchise agreement in these circumstances. Further, the court also found that any losses could be quantified.
(III) Balance of Convenience
There was no real discussion of this part of the RJR-Macdonald test.
In conclusion, since the Franchisor failed to discharge its onus that there was a serious issue to be tried based on the Strong Case standard, and that it would suffer irreparable harm, the motion for interlocutory injunctive relief was dismissed.
Recent Cases – Gold Medalist
Instant Imprints Canada Inc. v 738806 NB Inc.[16] (“Instant Imprints”)
Instant Imprints Canada Inc. (the “Franchisor”) operates a franchise system for decorated apparel, signage, and promotional products. The Franchisor had entered into a franchise agreement with 738806 NB Inc. (the “Franchisee”), and Robert Reed, Keith Reed (the “Principals” and collectively with the Franchisee, (collectively the “Franchisee Parties”) in March 2023 to operate an Instant Imprints franchise in Moncton, New Brunswick. The franchise agreement contained a post-termination covenant not to compete within the city of Moncton plus 8 kilometres and within 5 kilometres of other franchisees.
The Franchisor terminated the franchise agreement in August 2025 due to the Franchisee’s failure to pay royalties, brand fees, and lease payments totaling approximately $36,000. Shortly after termination, Elevate Promo & Apparel Inc. (“Elevate”) was incorporated by Krista Reed (“Krista” who was Robert Reed's spouse, and together with Elevate, and the Franchisee Parties, the “Defendants”) and began operating the same business within the restricted territory. The Franchisor then brought a motion for an interim injunction against the Defendants, alleging that the Defendants violated the post-termination non-compete covenant and the covenant against using the Franchisor’s confidential information.
The evidence showed Elevate used the same phone number and website as the Franchisee, contacted the Franchisor’s suppliers, and operated from the Defendant’s shared address at 259 Indian Mountain Road.
The Defendants advanced several arguments in trying to oppose the motion:
- That the non-compete covenant was unreasonable, vague, and unenforceable.
- That there had been no opportunity to negotiate the Franchise Agreement and state it was provided on a “take it or leave it” basis (an issue that was not disputed by the Franchisor, however the Franchise Agreement clearly states that the Franchised Parties had an opportunity to review its terms, and to seek legal or other advice before signing) and that therefore the court should more carefully scrutinize the non-compete covenant.
(I) Serious Issue
The court applied the Strong Case Standard as opposed to the Serious Issue standard, because the interim injunction would be tantamount to final relief.
The court:
- found that the non-complete was covenant sufficiently clear regarding prohibited activities and geographic scope.
- treated this as a commercial transaction with a presumption of validity, rejecting arguments about inequality of bargaining power. Despite this statement in the decision, the court actually carefully scrutinized the reasonableness of the non-compete covenant.
(II) Irreparable Harm
Despite that the Franchisor did not show a direct intention to operate in the region, the court accepted that the Franchisor had legitimate proprietary interests to protect, accepting the fact that no new franchisee would want to sign in the territory was sufficient (the MEDIchair test). The court also concluded that the Franchisor had legitimate proprietary interests to protect, including the integrity of the franchise system and reputation, loss of goodwill, and confidential information, and as a result would suffer irreparable harm without an injunction, that could not be quantified monetarily.
(III) Balance of Convenience
The court found that the balance of convenience favoured the Franchisor, noting that the Defendants deliberately breached negative covenants they expressly agreed. As well, there court expressed its concern that other franchisees might view non-enforcement as an opportunity to breach their own franchise agreements.
The court rejected sympathy arguments, stating the defendants' predicament was of their own making. Further, the court found Elevate and Krista, though not parties to the Franchise Agreement, acted in coordination with the Franchisee Parties to circumvent contractual obligations. The timing of Elevate's incorporation, use of franchise assets, and operations within the restricted territory supported the inference that Elevate was a "front" to assist the Franchisee Parties in avoiding their obligations.
The court granted the interim injunction restraining the Defendants from competing within the restricted territory, using confidential information, diverting customers or suppliers, and advertising competitive businesses for two years from termination. The defendants were ordered to return all confidential information immediately.
Conclusion and Key Practice Tips
- Like the Olympic or Paralympic athlete, the success of the motion for injunctive relief will, at the outset, entirely depend on discipline demonstrated by the drafter of the non-compete covenant to ensure that the non-compete covenant is:
- Unambiguous; and
- Reasonable as to temporal, geographic and subject matter scope.
- Carefully consider the evidence that is required to prove irreparable harm (MEDIchair).
- Carefully consider the nature of the relief that is being claimed: does it seek only to “restrain” conduct or does it require the respondent to “take action”.
[1] The author is no doubt dating himself since this program might not be familiar to anyone born after perhaps 1990 since the program last aired in January 1998!
[2] [1994] 1 SCR 311, 333–34 1994 CanLII 117 (SCC).
[3] Quizno's Canada Restaurant Corp. v. 1450987 Ontario Corp., 2009 CarswellOnt 2280, [2009] O.J. No. 1743, 2009 CanLII 20708 at para 41 (Ont. S.C.J.), leave to appeal refused 2009 CarswellOnt 3455 (Ont. Div. Ct.).
[4] 2009 SCC 6 (CanLII), [2009] 1 SCR 157 2009 SCC 6 (CanLII) at para 43.
[5] MEDIchair LP v. DME Medequip Inc., 2016 CarswellOnt 2700, 2016 ONCA 168.
[6] Ibid.
[7] Canadian American Financial Corp v King (1989), 25 CPR 3d (315), 1989 CanLII 252 (BC CA) at para 17.
[8] [2004] 1 S.C.R. 249, 2004 SCC 7 at para 57.
[9] 2025 NSSC 124.
[10] 2022 BCCA 36.
[11] [2001] OJ No 5150, 2001 CarswellOnt 6190 (Ont. S.C.J.).
[12] 2026 CanLII 218 (Ont. S.C.J.)
[13] S.O. 2000, c. 3.
[14] 2025 ONSC 2226.
[15] [2025] A.J. No. 990 2025 ABKB 536.
[16]2025 NBKB 261.
