Does the non-competition clause in the Azal Coffee Franchise Agreement prevent a franchisee from being an employee of a business that franchises a Competing Business during the term of the agreement?
Azal_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
4) Non-competition.
a) The Franchisee Parties acknowledge that the Information disclosed to the Franchisee Parties and all other aspects of the Company's System are highly valuable assets of the Company, and the Franchisee Parties agree that the Franchisee Parties and their shareholders, officers, directors, partners, members, managers, owners, investors, Family Members and affiliates must not, during the term of the Franchise Agreement, engage in any activity in competition with the Company or its franchisees and licensees, including involvement, whether as an owner (except ownership of no more than one percent (1%) of a publicly traded entity), director, officer, member, manager, employee, consultant, lender, representative or agent, or in any other capacity, or otherwise in any business that is involved, in whole or in part, in a Competing Business (except other Stores operated under franchise agreements entered into with the Company), or in any business or entity that franchises, licenses, or otherwise grants to others the right to operate a Competing Business, unless you have received the Company's prior written approval.
b) In the event that the Franchise Agreement between Franchisee and the Company terminates, expires without renewal, or ends for any other reason, the Franchisee Parties and their shareholders, officers, directors, members, managers, partners, owners, investors, Family Members, and affiliates, must not, for a period of three (3) years commencing on the later of the effective date of termination, expiration, non-renewal, or any other end of the Franchise Agreement, directly or indirectly, engage in any activity in competition with the Company or its franchisees and licensees, including involvement, whether as an owner (except ownership of no more than one percent (1%) of a publicly traded entity), partner, director, officer, member, manager, employee, consultant, lender, representative, or agent, or in any other capacity in 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; provided that, the restrictions in this Section will only apply within the Geographic Areas.
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, the non-competition clause within the Franchise Agreement explicitly restricts franchisees and related parties from engaging in activities that compete with Azal Coffee during the term of the agreement. This includes being involved in any capacity, such as an employee, with a business that franchises a competing business.
Specifically, the franchisee and their shareholders, officers, directors, partners, members, managers, owners, investors, family members, and affiliates are prohibited from involvement in a Competing Business. This restriction extends to being an owner (with a limited exception of owning no more than 1% of a publicly traded entity), director, officer, member, manager, employee, consultant, lender, representative, or agent of any business involved in a Competing Business or any entity that franchises, licenses, or grants others the right to operate a Competing Business.
This non-competition provision applies not only during the term of the Franchise Agreement but also extends for a period of three years after the termination, expiration, or non-renewal of the agreement. After the agreement ends, the restriction applies within specific Geographic Areas, which include the Franchise Location and the areas within twenty-five (25) miles of the Franchise Location and any other Azal Coffee Store. This means that franchisees must avoid any competitive involvement within these defined areas for three years after leaving the Azal Coffee system.
For a prospective Azal Coffee franchisee, this clause has significant implications. It restricts their ability to work for or invest in competing businesses, including those that franchise similar concepts, both during the franchise term and for a subsequent three-year period within a defined geographic area. Franchisees should carefully consider these restrictions and how they might impact their future career or investment options.