If a 360 Painting franchisee terminates the agreement, must the franchisee still comply with the post-termination covenant not to compete?
360_Painting Franchise · 2025 FDDAnswer from 2025 FDD Document
- (ii) If Franchisee terminates this Agreement pursuant to this Section, all posttermination obligations of Franchisee described herein shall not be waived but shall be strictly adhered to by Franchisee, and Franchisee shall remain obligated to honor all other obligations set forth in this Agreement that, by their terms, apply subsequent to termination of the franchise relationship, including the payment of all outstanding Continuing Fees due hereunder and compliance with the post-termination covenant not to compete.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 56)
What This Means (2025 FDD)
According to the 2025 360 Painting Franchise Disclosure Document, if a franchisee terminates the agreement due to a material breach by 360 Painting that 360 Painting fails to cure within a specified timeframe, the franchisee is still obligated to adhere to the post-termination obligations, including the covenant not to compete. Specifically, if the franchisee terminates the agreement because 360 Painting materially breached the agreement and failed to cure the breach within 90 days after written notice, the franchisee must still comply with the post-termination covenant not to compete.
The post-term non-competition agreement states that for two years following the termination or expiration of the agreement, the franchisee cannot have a direct or indirect interest in a Competitive Business or perform services for a Competitive Business. A Competitive Business is defined as any business offering painting, decorating, and wall finishing services. This restriction applies within the franchisee's Protected Territory, within a 20-mile radius of the Protected Territory, or within 20 miles of any other existing 360 Painting Business.
This non-compete clause is in place because 360 Painting franchisees gain knowledge of confidential information and business methods that, if disclosed or used, could harm 360 Painting and its franchisees. To protect this information, 360 Painting can seek an injunction against a franchisee who threatens to breach the non-compete agreement, in addition to any other legal remedies. The duration of the non-compete period can also be extended if the franchisee is in default or violates the agreement, potentially lasting for two years from the date a court issues an order restraining the franchisee from violating the agreement.
It is important to note that the non-compete restrictions do not prevent a franchisee from owning securities in a Competitive Business if those securities are listed on a stock exchange or traded over-the-counter and represent 3% or less of the outstanding shares. This allows for minor investments without violating the non-compete agreement. Franchisees should carefully review Section 18 of the franchise agreement to fully understand the scope and implications of these restrictive covenants.