When Franchisees Walk: Injunctions In Ontario Franchise Disputes

When a franchisee walks mid-term and takes 600 agents to a direct competitor, an injunction may be the appropriate interim remedy.

In Keller Williams Realty, LLC v. VIP Realty Inc., 2025 ONSC 7152, the Ontario Superior Court of Justice granted an interlocutory injunction against two former KWR franchisees who had defected to Royal LePage. 

The decision offers a clear and instructive treatment of three issues that arise repeatedly in commercial litigation: (1) the applicable test for injunctive relief, (2) the evidentiary threshold for fundamental breach, and (3) the enforceability of non-compete covenants.

Keller Williams Realty (KWR) is a Texas-based real estate franchisor operating what it calls “market centres” across Ontario. 

VIP Realty (Ottawa) and Associates Realty Solutions Inc. (Mississauga) were among its largest Canadian franchisees. Together, they had grown from a combined 288 agents in 2010 to approximately 600 by 2025.

On June 24, 2025, with years remaining on both license agreements, the defendants terminated their agreements with KWR, rebranded immediately as Royal LePage franchises, and redirected their KWR websites to their new RLP pages. 

KWR moved for injunctive relief to enforce the non-competition covenants in those agreements. 

The defendants countered that KWR had fundamentally breached the agreements first, entitling them to walk away.

The threshold question was whether KWR needed to meet the lower “serious issue to be tried” standard from RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 SCR 311, or the more demanding “strong prima facie case” standard.

The defendants argued that the relief sought was effectively mandatory — requiring them to abandon their new RLP franchises and restore their KWR operations — and that the higher standard therefore applied. 

The court agreed. 

Drawing on R. v. Canadian Broadcasting Corp., 2018 SCC 5, Justice Kurz found that because granting the injunction would require the defendants to undertake a positive course of action to restore the status quo, it was properly characterized as mandatory. 

The strong prima facie case standard applied. Practically, this matters. 

Under the strong prima facie test, the moving party must demonstrate “a strong likelihood on the law and evidence presented” that it will succeed at trial.

As the Divisional Court noted in Loops L.L.C. v. Maxill Inc., 2020 ONSC 5438, a strong prima facie case also reduces the weight given to the irreparable harm and balance of convenience prongs of the test.

The franchisees argued that Keller Williams had fundamentally breached the agreements. They alleged, among other things, that:

• Keller Williams had encroached on territories they believed were exclusively theirs;
• The franchisor failed to address concerns about the legality of certain aspects of its business model;
• The value of the franchise system had deteriorated significantly.

According to the franchisees, these issues justified their decision to terminate the agreements and compete directly against Keller Williams.

The court reviewed the law relating to fundamental breach and repudiation. Not every breach of contract allows a party to walk away from an agreement. 

A fundamental breach is “…the deprivation of substantially the whole benefit of the contract… [in other words], behind all of these expressions lies a single notion, that of substantial failure of performance”.

Ontario courts consider factors such as:

• The importance of the obligation that was breached;
• The seriousness of the consequences flowing from the breach;
• Whether the breach is likely to continue; and,
• The extent to which the contract has otherwise been performed.

The threshold is intentionally high. 

Courts are reluctant to allow parties to escape long-term contractual obligations based on complaints that, while significant, do not strike at the heart of the agreement.

The franchisees argued that Keller Williams had allowed the franchise system to lose value and had failed to adapt adequately to the Canadian market.

The court was not persuaded.

The evidence showed that the franchisees had experienced substantial growth while operating within the Keller Williams system. 

Agent counts increased significantly, listings increased dramatically, and the franchisees had invested heavily in acquiring additional ownership interests in their businesses.

The court found that these facts were inconsistent with the claim that the franchise system had become valueless.

Importantly, the court noted that the relevant question was not whether the franchisees could have performed better under another franchise model. 

The issue was whether they had been deprived of the essential benefits of their existing agreements. The evidence did not support that conclusion.

The defendants challenged the covenants on two fronts: ambiguity and overbreadth. 

Both arguments failed.

On ambiguity, the challenge centred on the phrase “engage in” as potentially covering even a janitorial role at a competing brokerage. 

The court rejected this, finding the phrase unambiguous when read in the context of the full clause, which was directed at active engagement in a real estate business.

The Ontario Court of Appeal’s decision in MEDIchair LP v. DME Medequip Inc., 2016 ONCA 168, which upheld nearly identical language, provided direct support.

On reasonableness, the court applied the commercial standard from Payette v. Guay Inc., 2013 SCC 45: a restrictive covenant in a commercial context is treated as lawful unless shown to be unreasonable on a balance of probabilities. 

KWR had a legitimate proprietary interest in its system, its training methods, and the goodwill associated with its brand. 

The defendants themselves acknowledged that interest: VIP’s own employment contracts contained non-competition covenants.

The court also drew a pointed inference from the defendants’ refusal to produce unredacted copies of their RLP franchise agreements: if those agreements contained narrower restrictive covenants than KWR’s, they would have produced them.

Critically, the covenants were in-term; that is, they applied only during the life of the license agreements, which supported upholding the clause.

Justice Kurz cited Invescor Restaurants Inc. v. 3574423 Canada Inc., 2011 ONSC 1609 for the proposition that a franchisee receiving the benefit of a franchise agreement cannot undermine its value absent special circumstances. No such circumstances existed here.

On irreparable harm, the court found that the loss of two major franchises in Ottawa and Mississauga, with 600 agents moving to a direct competitor, caused harm that could not be adequately quantified or remedied in damages. 

The systemic effect on KWR’s broader franchise network compounded the analysis: other franchisees would learn that non-compete covenants could be breached with impunity, eroding the value of the entire system.

On balance of convenience, Justice Kurz was unmoved by the defendants’ argument that an injunction would trap them between two competing sets of contractual obligations. 

It was the defendants who unilaterally altered the status quo, were paid by RLP to do so, and refused to disclose the amount. 

A party cannot deliberately breach a contract and then ask a court to weigh the consequences of that breach in its favour.

This decision reinforces several principles that practitioners advising either side of a commercial dispute should keep in mind.

First, characterizing the injunction correctly at the outset matters. A mandatory injunction triggers a higher evidentiary threshold and requires the moving party to demonstrate a strong prima facie case. 

Second, the fundamental breach defence in a franchise context is a high-evidentiary-bar claim. Minor breaches will not suffice. 

The conduct must make continued performance intolerable; even then, the innocent party must accept the repudiation clearly and promptly. Delay in acting on an alleged breach can be fatal.

Third, in-term non-competes in commercial franchise agreements stand on stronger legal footing than post-term covenants, and considerably stronger footing than those in employment contracts.

Courts will enforce them against sophisticated parties who received the benefit of the agreement.

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