Under what circumstances is a Covenantor permitted to own, operate, or manage a Competitive Business during the non-compete period with Belocal?
Belocal Franchise · 2025 FDDAnswer from 2025 FDD Document
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- In order to protect the Confidential Information, the Marks, the goodwill of the System, and the legitimate business interests of the Franchised Business, Covenantor agrees that, during the term of his or her business relationship with the Franchisee or the Franchised Business, and for a period of two years following the earlier of (A) the termination of Covenantor's business relationship with Franchisee (regardless of the reason for such termination), or (B) the termination, expiration, or transfer of Franchisee's interest in the Franchise Agreement (regardless of the reason for termination, expiration, or transfer), Covenantor will not, without Franchisor's prior written consent or as permitted under a valid franchise agreement with Franchisor:
- (i) own, operate, or manage any Competitive Business; or
- (ii) engage in, provide, or assist others in engaging in or providing, Competitive Services; or
- (iii) perform any activities for or relating to a Competitive Business, the performance of which is reasonably likely to involve the use or disclosure of Confidential Information, which activity is similar to any activity Covenantor engaged in during the twelve-month period prior to the termination of Covenantor's business relationship with Franchisee or the termination, expiration, or transfer of Franchisee's interest in the Franchise Agreement; provided, however, that nothing herein shall prohibit Covenantor from owning, solely as an investment, securities of any Person traded on any national securities exchange if neither Franchisee nor any Covenantor controls, or is a member of a group which controls, such Person and does not, directly or indirectly, own 5% or more of any class of securities of such Person.
Source: Item 22 — CONTRACTS (FDD page 71)
What This Means (2025 FDD)
According to Belocal's 2025 Franchise Disclosure Document, a Covenantor is restricted from owning, operating, or managing any Competitive Business during their business relationship with the Franchisee or the Franchised Business, and for two years after the termination of that relationship. This restriction applies regardless of the reason for termination, expiration, or transfer of the Franchise Agreement. However, there are exceptions to this rule.
A Covenantor may engage in such activities if they obtain Belocal's prior written consent or if it's permitted under a valid franchise agreement with Belocal. Additionally, the non-compete agreement does not prevent a Covenantor from owning securities of any publicly traded company as a passive investment, provided that neither the Franchisee nor the Covenantor controls the company or owns 5% or more of its securities.
Furthermore, the definition of "Restricted Territory" and "Competitive Business" are subject to potential limitations. If a court of law or arbitrator determines that the defined territories are too broad, the restricted territory may be reduced to the territories of Belocal's franchisees, a ten-mile radius around the territory, or simply the territory of the Franchised Business. Similarly, the definition of "Competitive Business" is divisible and severable, meaning that specific business lines or services may be excluded if deemed unreasonable.