Does the non-competition clause in the Azal Coffee Franchise Agreement prevent a franchisee from being an agent of a business that franchises a Competing Business during the term of the agreement?
Azal_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
- c) The Franchisee Parties and their shareholders, officers, directors, members, managers, partners, owners, and investors, Family Members, and affiliates, must not, during the term of the Franchise Agreement and for a period of three (3) years after termination, expiration, non-renewal, or any other end of the Franchise Agreement, for any reason whatsoever, 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 or permit access to the Information to any person who is engaged or has arranged to become engaged in any activity in competition with Azal Coffee Stores, including involvement, either as an owner (except no more than one percent (1%) of the publicly traded securities of an entity), partner, director, officer, member, manager, 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.
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, the Franchise Agreement includes non-competition clauses that restrict the franchisee's activities during the term of the agreement and for a period of three years after its termination, expiration, or non-renewal. Specifically, franchisees and related parties are prohibited from being involved in any capacity with a business that franchises, licenses, or grants the right to operate a competing business. This restriction includes acting as an agent for such a business.
This means that during the term of the Azal Coffee Franchise Agreement, a franchisee cannot be an agent for another business that franchises a competing coffee shop or similar business. This restriction also extends for three years after the franchise agreement ends. The definition of a "Competing Business" includes businesses that sell 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.
The non-competition clauses apply not only to the franchisee but also to their shareholders, officers, directors, members, managers, partners, owners, investors, family members, and affiliates. This broad scope aims to prevent any indirect involvement in competing businesses. The agreement specifies that involvement includes being an owner, partner, director, officer, member, manager, employee, consultant, lender, representative, or agent.
For a prospective Azal Coffee franchisee, this means they must avoid any direct or indirect association with businesses that compete with Azal Coffee or franchise similar businesses, both during the franchise term and for three years afterward. This restriction is in place to protect Azal Coffee's market position and confidential information. Franchisees should carefully consider these limitations and ensure they do not violate these terms, as doing so could result in legal consequences and potential termination of the franchise agreement.