A California franchisee could not escape an Illinois non-compete

What happened

BrightStar Franchising licenses its systems to BrightStar Care agencies, which provide in-home care in defined territories. Foreside Management, run by Mark Woodsum, signed four BrightStar franchise agreements in 2014 and 2015 and operated in Southern California. The relationship ended, and BrightStar sued for breach of contract and moved for a preliminary injunction to enforce the post-termination obligations.

The franchise agreements contain an Illinois choice-of-law clause. Foreside argued California law should govern instead, and that under section 16600 of the California Business and Professions Code the restraints were void. That section reads about as broadly as a statute can: with limited exceptions, "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."

Why the choice-of-law clause held

Illinois honors a contract's choice-of-law clause unless the chosen state has no substantial relationship to the parties, or applying the chosen law would offend a fundamental policy of a state with a materially greater interest. Critically, the party arguing to depart from the clause bears the burden of showing a true conflict, meaning a difference in law that would change the outcome.

Foreside could not carry it, and the reason is a point about California law that is widely misunderstood outside California. In Ixchel Pharma, LLC v. Biogen, Inc., the California Supreme Court clarified that section 16600 does not automatically void restraints arising from commercial relationships between businesses. Those are judged under a rule of reason. The per se rule that California is known for is aimed at employment: an employer restraining a former employee.

Foreside argued Ixchel did not involve post-termination covenants. The court found nothing in its reasoning limiting it that way, and Foreside identified no authority saying so, while BrightStar pointed to several federal decisions applying Ixchel to post-termination restraints. With no genuine conflict, Illinois law applied and the motion was granted in part.

Why this matters to franchisees and franchisors

Franchisors headquartered in Illinois routinely put Illinois choice-of-law clauses in agreements signed by franchisees all over the country. Franchisees routinely assume that their home state's protective law will apply anyway, particularly in California, where the reputation of section 16600 is close to folklore.

This decision is a reminder that you are a business, not an employee, and the doctrines that protect employees frequently do not reach you. A franchise agreement is a commercial contract between two companies, and courts approach it that way. The freedom-to-work statutes, the salary thresholds, the presumptions against restraints, most of that machinery is built for the employment relationship.

The practical consequence is that a franchisee's leverage lies in the agreement itself, not in the hope of a favorable forum later. Territory definitions, the length and geographic reach of the post-termination covenant, what counts as a competing business, and whether the covenant survives a franchisor's own breach are all worth negotiating before signing, because the choice-of-law clause will likely put you in the franchisor's home state under the franchisor's home law.

What the ruling does and does not settle

This is a preliminary injunction decision, granted only in part, on a record the court described as preliminary and not binding as the case develops. It is a federal trial court ruling, so it is persuasive rather than controlling. What it demonstrates is how an Illinois federal judge is likely to handle a franchisee's attempt to substitute its home state's law for the one in the contract.