Does the post-term covenant not to compete prevent an Aw franchisee from diverting customers to a competitive business?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
e_0.jpeg)
- or (b) any entity which is granting franchises or licenses or entering into joint venture relationships for any restaurant business which offers products or services similar to those offered by a Papa Ray's Pizza Restaurant, other than the ownership of securities traded on a stock exchange or on the over-the-counter market that represent 5% or less of that class of securities.
- (b) directly or indirectly divert or attempt to divert any former business or customer of your Papa Ray's Pizza Restaurant to any competitive business;
- (c) employ or seek to employ any person employed by us or our affiliate, or otherwise directly or indirectly induce or seek to induce such person to leave his or her employment; and
- (d) directly or indirectly, solicit or sell products or services to any former customer of your Papa Ray's Pizza Restaurant.
- 17.2 Court Modification of Agreement. You agree that this form of Agreement is prepared for use in many jurisdictions with differing public policies and that such public policies change. Accordingly, you agree that the prevailing non-competition restrictions set forth above may be modified by a Court to the extent necessary to make the non-competition agreements valid and enforceable against you.
- 17.3 Enforcement of Covenants Not to Compete. You acknowledge that violation of the covenants not to compete contained in this Agreement would result in immediate and irreparable injury to us for which no adequate remedy at law will be available. Accordingly, you hereby acknowledge that we may seek to obtain the entry of an injunction prohibiting any conduct by you or your Owners in violation of the terms of the covenants not to compete set forth in this Agreement.
Source: Item 22 — CONTRACTS (FDD pages 39–40)
What This Means (2025 FDD)
According to Aw's 2025 Franchise Disclosure Document, the post-term covenant not to compete does address the diversion of customers to a competitive business. Specifically, after the franchise agreement is assigned, terminated, or expires without renewal, the franchisee agrees not to divert or attempt to divert any former business or customer of their Papa Ray's Pizza Restaurant to any competitive business. This restriction is in place for a period of two years, starting from the effective date of assignment, termination, or expiration, or the date on which the franchisee begins complying with the covenants.
This provision aims to protect Aw from unfair competition by former franchisees who might try to leverage their knowledge of and relationships with customers gained during their time as a franchisee. By preventing the diversion of customers, Aw seeks to maintain the integrity of its customer base and the value of its brand. This is a fairly standard practice in franchising, as franchisors typically want to ensure that former franchisees do not directly compete and take away established customers.
Additionally, the FDD states that violating the covenants not to compete would result in immediate and irreparable injury to Aw, for which no adequate remedy at law will be available. Therefore, Aw may seek an injunction prohibiting any conduct by the franchisee that violates the terms of the covenants not to compete. The franchisee also agrees that it may be presumed that any violation of the terms of said covenants not to compete was accomplished by and through their unlawful use of Aw's Confidential Information. The franchisee further agrees to pay all costs and expenses (including reasonable attorneys' and experts' fees) incurred by Aw in connection with the enforcement of those covenants not to compete.
Prospective franchisees should carefully consider the implications of this post-term covenant, as it could significantly restrict their business activities for two years after leaving the Aw system. It is advisable to seek legal counsel to fully understand the scope and enforceability of these restrictions in their specific jurisdiction.