What happens to the protected territory of a 360 Painting franchisee upon termination?
360_Painting Franchise · 2025 FDDAnswer from 2025 FDD Document
- (ii) Post-Term Non-Competition.
In addition to and not in limitation of any other restrictions on Franchisee contained herein, Franchisee and the Bound Parties agree that they will not, for two (2) years following the effective date of termination or expiration of this Agreement for any reason, or following the date of a Transfer by Franchisee, directly or indirectly, for and on behalf of itself, himself, herself or any other person or entity, (a) have any direct or indirect interest as a disclosed or beneficial owner in a Competitive Business or (b) perform services as a director, officer, manager, employee, consultant, representative, agent, or otherwise for a Competitive Business which is (i) located or operating within the Protected Territory; or (ii) within a radius of twenty (20) miles as the crow flies of the Protected Territory or (iii) located in or operating within twenty (20) miles of the primary office of any other existing 360 Painting Business or 360 Painting Business in development that has been assigned a protected territory.
- (iii) Competitive Business.
For purposes of this Agreement, the term "Competitive Business" means any business operating, or granting franchises or licenses to others to operate, in any business which offers or sells painting, decorating and wall finishing services (other than another 360 Painting Business operated by Franchisee under license from Franchisor).
Neither Franchisee nor the other Bound Parties will be prohibited from owning securities in a Competitive Business if they are listed on a stock exchange or traded on the over-the-counter market and represent 3% or less of the number of shares of that class of securities which are issued and outstanding.
- (iv) General. The parties acknowledge that the covenants contained in this Section 18 are based on the reason and understanding that Franchisee and the Bound Parties will possess knowledge of Franchisor's business and operating methods and confidential information, disclosure and use of which would prejudice the interest of Franchisor and its franchisees.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 56)
What This Means (2025 FDD)
According to the 2025 360 Painting FDD, following the termination or expiration of the franchise agreement, a franchisee is subject to a post-term non-competition agreement for two years. This agreement restricts the franchisee from engaging in a Competitive Business within the Protected Territory, within a 20-mile radius of the Protected Territory, or within 20 miles of any other existing 360 Painting Business that has been assigned a protected territory. A Competitive Business is defined as any business offering painting, decorating, and wall finishing services. This restriction applies regardless of the reason for termination or expiration of the agreement.
This means that upon termination, a former 360 Painting franchisee cannot immediately start or work for a competing painting business in or near their former territory. The non-compete extends to being a disclosed or beneficial owner in a Competitive Business or performing services for one as a director, officer, manager, employee, consultant, representative, or agent. The FDD specifies that these covenants are in place because franchisees gain knowledge of 360 Painting's business methods and confidential information, which, if disclosed or used, could harm 360 Painting and its franchisees.
However, the FDD states that a franchisee is not prohibited from owning securities in a Competitive Business if they are listed on a stock exchange or traded on the over-the-counter market and represent 3% or less of the number of shares of that class of securities which are issued and outstanding. This allows for minor investments in publicly traded competitors without violating the non-compete agreement. The restrictions are designed to protect 360 Painting's market position and proprietary information after a franchise agreement ends.