Does the non-competition clause in the Azal Coffee Franchise Agreement prevent a franchisee from being an officer of a business that franchises a Competing Business during the term of the agreement?
Azal_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
- 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.
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 a franchisee from being involved with a business that franchises a competing business during the term of the agreement. Specifically, the franchisee, along with their shareholders, officers, directors, members, managers, owners, investors, Family Members, and affiliates, are prohibited from engaging in any activity that competes with Azal Coffee or its franchisees and licensees. This includes involvement as an owner, director, officer, member, manager, employee, consultant, lender, representative, or agent in any business that franchises, licenses, or grants others the right to operate a Competing Business. The only exception is owning no more than one percent of a publicly traded entity.
This restriction applies not only to direct involvement in a competing business but also extends to indirect involvement through franchising, licensing, or granting operational rights to others. The definition of a "Competing Business" includes any business that competes with Azal Coffee Stores or is similar, selling similar coffee beverages, baked goods, food products, coffee beans, or coffee accessories. This broad definition ensures that franchisees cannot circumvent the non-compete clause by engaging in similar businesses under a different guise.
After the termination, expiration, or non-renewal of the Franchise Agreement, these restrictions continue for a period of three years within specified Geographic Areas. These areas include the Franchise Location and the areas within twenty-five miles of the Franchise Location and any other Azal Coffee Store existing or in development. This post-term non-compete clause is designed to protect Azal Coffee's market share and confidential information, preventing former franchisees from using their knowledge to benefit a competing business. Franchisees acknowledge that these restrictions are fair and reasonable to protect the competitive business interests of Azal Coffee and its franchisees.