Can an Azal Coffee franchisee divert business from their franchise to a Competing Business during the term of the agreement?
Azal_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
You and your shareholders, officers, directors, partners, members, managers, owners and investors, Family Members, and affiliates, must not, during the term of this Agreement and for a period of three (3) years after termination, expiration, or non-renewal of this Agreement, directly or indirectly: (a) divert or attempt to divert any business or customer of the Franchise Business or any other Store to any Competing Business by direct or indirect inducements or otherwise; (b) sponsor, appoint or encourage or influence or promote friends, relatives or associates to operate a Competing Business; or (c) employ any person or furnish of permit access to our Confidential Information to any person who is engaged or has arranged to become engaged in any activity in competition with Azal Coffees, including involvement, either as an owner (except no more than one percent (1%) of the publicly traded securities of an entity), member, manager, partner, director, officer, employee, consultant, lender, representative or agent, or in any other capacity, of any business that is involved, in whole or in part, in a Competing Business or in any business or entity that franchises, licenses or otherwise grants to others the right to operate a Competing Business.
13.4 Definitions of Competing Business, Geographic Areas, and Family Members. The following definitions will apply to this Agreement:
- (a) "Competing Business" means any business that competes with the Stores and/or is the same or similar to an Azal Coffee Store, including but not limited to a business that sells the same or similar coffee beverages, baked goods, food products, coffee beans, or coffee accessories for dine-in, carry-out, catering, or delivery or other products that may be offered by Azal Coffee Stores now or in the future.
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, franchisees are prohibited from diverting business to a competing business during the term of the franchise agreement. Specifically, the franchisee, along with their shareholders, officers, directors, members, managers, owners, investors, family members, and affiliates, are restricted from diverting or attempting to divert any business or customer of the Azal Coffee franchise to any competing business through direct or indirect inducements. This restriction applies not only during the term of the agreement but also extends for a period of three years after the termination, expiration, or non-renewal of the agreement.
The FDD defines a "Competing Business" as any business that competes with Azal Coffee stores, including those selling similar coffee beverages, baked goods, food products, coffee beans, or coffee accessories for dine-in, carry-out, catering, or delivery. This broad definition ensures that franchisees cannot operate a similar business that could draw customers away from the Azal Coffee franchise. The agreement also prohibits franchisees from sponsoring, appointing, encouraging, or influencing others to operate a competing business, further protecting Azal Coffee's market share and brand integrity.
These restrictions are in place to protect Azal Coffee's competitive business interests and those of its franchisees and licensees. The franchisee acknowledges that the post-term and geographical restrictions are fair and reasonable. Azal Coffee also reserves the right to reduce the scope of these provisions at any time with immediate effect upon notice to the franchisee. This clause ensures that Azal Coffee can adapt the restrictions as needed to protect its business interests while remaining fair to the franchisee.