Does the Baya Bar Franchise Agreement contain a covenant not to compete that extends beyond termination, and may not be enforceable under California law?
Baya_Bar Franchise · 2024 FDDAnswer from 2024 FDD Document
The Franchise Agreement contains a covenant not to compete which extends beyond the termination of the franchise. This provision may not be enforceable under California law.
8.3.2 Upon the expiration or earlier termination of this Agreement or upon a Transfer and continuing for twenty-four (24) months thereafter, Developer shall not, either directly or indirectly, for himself or herself or through, on behalf of or in conjunction with any person or entity (i) divert, or attempt to divert, any business or customer of Developer's Baya Bar outlets or of other franchisees in the System to any competitor, by direct or indirect inducement or otherwise; or (ii) participate as an owner, partner, director, officer, employee, consultant or agent or serve in any other capacity in any retail or café business featuring acai or similarly prepared smoothies or bowls within five (5) miles of the Development Area or any Baya Bar location; or (iii) do or perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with the Marks and the System or (iv) in any manner interfere with, disturb, disrupt, decrease or otherwise jeopardize the business of the Franchisor or any Baya Bar developers or franchisees.
8.4 Reasonableness of Restrictions.
Developer acknowledges and agrees that the covenants not to compete set forth in this Agreement are fair and reasonable and will not impose any undue hardship on Developer since Developer has other considerable skills, experience and education which afford Developer the opportunity to derive income from other endeavors.
- 8.5 Reduction of Time or Scope.
If the period of time or the geographic scope specified above, should be adjudged unreasonable in any proceeding, then the period of time will be
reduced by such number of months or the geographic scope will be reduced by the elimination of such portion thereof, or both, so that such restrictions may be enforced for such time and scope as are adjudged to be reasonable. In addition, Franchisor shall have the right, in its sole discretion, to reduce the scope of any covenant set forth in this Article 8 or any portion thereof, without Developer's consent, effective immediately upon receipt by Developer of written notice thereof, and Developer agrees to forthwith comply with any covenant as so modified.
Source: Item 23 — RECEIPTS (FDD pages 56–189)
What This Means (2024 FDD)
According to Baya Bar's 2024 Franchise Disclosure Document, the Franchise Agreement does contain a covenant not to compete that extends beyond the termination of the franchise. Specifically, the FDD states that this provision may not be enforceable under California law.
After the agreement ends, the franchisee is restricted for twenty-four months from engaging in activities that could harm Baya Bar. This includes diverting customers to competitors, participating in similar businesses featuring acai or smoothies within five miles of the Development Area or any Baya Bar location, or taking any action that could damage the goodwill associated with the Baya Bar brand.
The agreement states that the franchisee acknowledges the restrictions are reasonable, considering their other skills and opportunities for income. However, if any restriction is deemed unreasonable, Baya Bar has the right to reduce the time or geographic scope to make it enforceable. This is important for prospective franchisees to consider, especially in states like California where such clauses are heavily scrutinized.