What is the potential issue with the Aerus franchise agreement's covenant not to compete extending beyond the termination of the franchise in California?
Aerus Franchise · 2025 FDDAnswer from 2025 FDD Document
6. Exclusivity and Non-Competition.
- A. During the Term, neither Franchisee, nor its Operating Principal, or any other owner, shall (1) promote the sale of, or sell, directly or indirectly, any products or services that are similar in nature to, or that are substitutes for, the Products, (2) undertake or participate in any business or activity that is competitive in nature with the System or any of the Products, or with Company's, or any of Company's Affiliates', now existing or hereafter developed businesses or systems, or (3) use any of the Customer Data for any reason other than operation of the Franchised Business. Further, the Approved Location may be used for the operation and conduct of the Franchised Business only and for no other use. Franchisee may not use the Marks in connection with any business or activities other than the Franchised Business. Company may in the future modify, expand or supplement the System or modify or add to the Products offered hereunder and Company or any of Company's Affiliates may in the future develop or offer new businesses or systems. In either event, if Company determines, in its reasonable discretion that any behavior of Franchisee previously not in violation of this Section later violates this Section, Company may require that Franchisee cease any such behavior upon written notice to Franchisee.
- B. For a period of one (1) year after the expiration or termination of this Agreement or the transfer of all of Franchisee's interest in this Agreement, neither Franchisee, nor its Operating Principal, shall, within the Area of Responsibility or within a ten (10)-mile radius of any Aerus Business in existence or under construction as of the expiration or termination of this Agreement or the transfer of all of Franchisee's interest in this Agreement, (1) promote the sale of, or sell, directly or indirectly, any products or services that are similar in nature to, or that are substitutes for, the Products or (2) undertake or participate in any business or activity that is competitive in nature with the System or any of the Products, or with Company's, or any of Company's Affiliates', now existing or hereafter developed businesses or systems. Franchisee agrees that the length of time in this Section 6(B) will be tolled for any period during which Franchisee is in breach of the covenants set forth in this Section 6(B) or any other period during which Company seeks to enforce this Agreement.
Source: Item 23 — Receipts (FDD pages 74–305)
What This Means (2025 FDD)
According to Aerus's 2025 Franchise Disclosure Document, Section 6(B) of the franchise agreement stipulates that for one year after the agreement's expiration, termination, or transfer of interest, the franchisee and its Operating Principal cannot engage in competitive activities within their Area of Responsibility or within a 10-mile radius of any existing or under-construction Aerus business. This restriction includes promoting or selling similar products or services and participating in competitive businesses.
This non-compete clause could pose a significant issue for franchisees in California, as California law generally disfavors non-compete agreements. California Business and Professions Code Section 16600 states that contracts restraining anyone from engaging in a lawful profession, trade, or business are void, with limited exceptions. The Aerus franchise agreement's non-compete clause might be challenged in California courts as an unlawful restraint of trade, especially if it is deemed overly broad or unreasonable in scope or duration.
Prospective franchisees in California should be aware of this potential conflict between the franchise agreement and state law. They should consult with legal counsel to understand the enforceability of the non-compete clause in California and to assess the risks associated with this provision. It is important to determine whether the specific terms of the non-compete are narrowly tailored to protect Aerus's legitimate business interests and whether they impose an undue burden on the franchisee's ability to earn a living after the franchise relationship ends.
The FDD does not specify how Aerus addresses the enforceability of the non-compete agreement in California. A prospective franchisee should ask Aerus about their experience enforcing the non-compete in California, and whether they have faced legal challenges regarding its enforceability. Understanding Aerus's position on this issue is crucial for franchisees considering investing in California.