Ontario Court of Appeal: F45 Training Canada Non-Competition Clause Unenforceable

• The Ontario Court of Appeal ruled on the enforceability of restrictive covenants in a franchise agreement between F45 Training Canada Limited and 2685802 Ontario Limited.
• The court found the non-competition clause in the F45 Training Canada franchise agreement to be unreasonable and unenforceable due to its overly broad scope.
• Conversely, the non-solicitation clause was deemed reasonable and enforceable, and the franchisee was found to have breached it.
• The appellate court clarified that the lower court erred by finding the clauses ambiguous without proper interpretation and by applying employment law presumptions to franchise agreements.
• This decision emphasizes the need for franchisors to draft non-competition clauses narrowly to protect only legitimate business interests, distinguishing them from potentially enforceable non-solicitation clauses.

Crucially, the F45 Training Canada non-competition clause was found to be unreasonable and unenforceable.

A recent decision by the Ontario Court of Appeal has clarified the enforceability of restrictive covenants within franchise agreements, specifically distinguishing between non-competition and non-solicitation clauses. The case, F45 Training Canada Limited v. 2685802 Ontario Limited, 2026 ONCA 775, involved a franchisor of high-intensity interval training studios and a franchisee operating an F45 studio in Whitby, Ontario.

In March 2019, F45 Training Canada Limited entered into a five-year franchise agreement with 2685802 Ontario Ltd., with C. Skeates and W. Skeates, the directors of 268, acting as guarantors. The F45 Whitby West studio commenced operations in November 2019. As the agreement neared its November 2024 expiration, the respondents informed the franchisor on October 22, 2024, that they would not be renewing. Concurrently, they signed a new franchise agreement with The Yard Gym (TYG) and extended their lease for the same mall premises. The respondents then engaged in promotional activities, including emails and text messages to customers, announcing a "rebranding" and offering to exchange F45 memberships for TYG memberships, alongside an online funding request to convert the F45 studio into a TYG facility.

Faced with these actions, F45 Training Canada Limited sought a permanent injunction from the Ontario Superior Court of Justice to enforce the restrictive covenants contained in the franchise agreement. Prior to the application hearing, the respondents agreed to postpone the launch of TYG Whitby and any further marketing to former customers until March 1, 2025. On March 14, 2025, Justice Myrna L. Lack of the Superior Court declined to enforce the restrictive covenants.

The application judge determined that both the non-competition and non-solicitation clauses were ambiguous regarding the scope of restricted activities. Consequently, she did not proceed to assess the reasonableness of either clause. The franchisor subsequently appealed this decision, arguing that the judge had erred in finding the clauses ambiguous and requested the appellate court to interpret the clauses, find them reasonable, and conclude that the respondents had breached them. The respondents, conversely, maintained that the initial ruling was correct or, alternatively, requested that the issue of reasonableness be remitted back to the Superior Court.

The Ontario Court of Appeal granted the appeal, concluding that the application judge had made an error by deeming the restrictive covenants unenforceable due to ambiguity without first interpreting them within the broader context of the franchise agreement and surrounding circumstances. Upon conducting its own interpretation, the appellate court found no unresolved ambiguity concerning the scope of the restricted activities. Crucially, the F45 Training Canada non-competition clause was found to be unreasonable and unenforceable. This determination stemmed from the clause's overly broad scope of restricted activities, which extended beyond what was necessary to protect the franchisor's legitimate proprietary interests.

In contrast, the court found the franchise non-solicitation clause Ontario to be both reasonable and enforceable, confirming that the franchisee had breached this specific covenant. The Court of Appeal also addressed the franchisor's argument regarding the application judge's error in applying the employment law presumption of unenforceability to the restrictive covenants, implicitly affirming that such a presumption does not apply in the same manner to franchise agreements.

This ruling from the Ontario Court of Appeal provides significant guidance for the enforceability of restrictive covenants in franchise agreements. It underscores that while non-solicitation clauses may be upheld if reasonably drafted, non-competition clauses face a higher bar for enforceability. The court's emphasis on the necessity of narrowly tailored restrictions to protect only legitimate proprietary interests means that overly broad non-competition provisions, such as the one in F45 Training Canada Limited v. 2685802 Ontario Limited, are likely to be deemed unreasonable and unenforceable.

Franchisors in Ontario must carefully review and refine their restrictive covenants franchise agreement to ensure that non-competition clauses are not broader than absolutely necessary. The distinction between the enforceability of the non-competition and non-solicitation clauses highlights the importance of precise drafting, ensuring each covenant serves a specific, justifiable purpose without unduly restricting a former franchisee's ability to earn a livelihood. This decision reinforces the principle that while franchisors have a right to protect their business, such protections must be balanced against the franchisee's post-termination economic freedom.

Lawyers advising franchisors in Ontario must review and narrow the scope of non-competition clauses in franchise agreements to ensure they are not broader than necessary to protect legitimate proprietary interests, as overly broad clauses risk being deemed unreasonable and unenforceable by the Ontario Court of Appeal. Conversely, non-solicitation clauses may still be enforceable, requiring careful drafting and distinction between the two types of restrictive covenants.

Source: Original reporting via Canadian Lawyer Magazine