Are partners of an Azal Coffee franchisee subject to the non-compete restrictions?
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.
- (b) "Geographic Areas" means: (i) the Franchise Location; (ii) the area within twenty-five (25) miles of the Franchise Location; and (iii) the areas within twenty-five (25) miles of any other Azal Coffee Store existing or in development at the time you cease to operate the Competing Business.
- (c) "Family Members" means all individuals with any of the following relationships with you or any of your shareholders, officers, directors, partners, managers, members, owners and investors, and affiliates: (i) spouse; (ii) children; (iii) grandchildren; (iv) stepchildren; (v) parents; (vi) siblings; (vii) spouse's parents; and (viii) spouse's siblings.
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, partners of an Azal Coffee franchisee are indeed subject to non-compete restrictions, both during the term of the franchise agreement and for a period of three years after its termination, expiration, or non-renewal. This extends not only to the franchisee but also to their shareholders, officers, directors, members, managers, owners, investors, Family Members, and affiliates.
The restrictions prevent these individuals from diverting business or customers to a competing business, sponsoring or encouraging others to operate a competing business, or employing individuals involved in competitive activities or providing them access to confidential information. A "Competing Business" is defined as any business that competes with Azal Coffee Stores, including those selling similar coffee beverages, baked goods, food products, coffee beans, or coffee accessories.
These non-compete obligations apply to partners to ensure that they do not leverage their knowledge and access to Azal Coffee's confidential information and systems to unfairly compete with the franchise. The definition of "Family Members" further broadens the scope of these restrictions, encompassing a wide range of familial relationships to prevent indirect competitive activities. This is a fairly standard practice in franchising to protect the brand and the interests of other franchisees within the system.
Specifically, partners are prohibited from being involved in a Competing Business as an owner (with a minor exception of owning no more than 1% of publicly traded securities), member, manager, partner, director, officer, employee, consultant, lender, representative, or agent. The geographic scope of these restrictions includes the Franchise Location and the area within twenty-five (25) miles of the Franchise Location, as well as areas within twenty-five (25) miles of any other Azal Coffee Store existing or in development at the time the franchisee ceases to operate the Competing Business. This comprehensive approach aims to safeguard Azal Coffee's market position and proprietary information.