Is the covenant not to compete in Section 12.02 of the Bonchon Franchise Agreement, which extends beyond termination, enforceable under California law?
Bonchon Franchise · 2025 FDDAnswer from 2025 FDD Document
In Section 12.02 of the Franchise Agreement ("Covenant Not to Compete"), in the third paragraph thereof (which commences with the words "Further, during…"), the "no-poach" clause is removed – that is, the following specific words are removed: "(i) solicit for employment or hire our management personnel, the management personnel of any of our affiliates or the management personnel of any other franchised Business without first obtaining any written permission from us and the employer(s) of the personnel in question, or (ii)".
The remainder of the paragraph remains as is.
Section 12.02 of the Franchise Agreement ("Covenant Not to Compete") contains a covenant not to compete, which extends beyond the termination of the franchise.
This provision may not be enforceable under California law.
Source: Item 23 — RECEIPTS (FDD pages 92–536)
What This Means (2025 FDD)
According to Bonchon's 2025 Franchise Disclosure Document, Section 12.02 of the Franchise Agreement contains a covenant not to compete that extends beyond the termination of the franchise. However, the California Addendum to the Franchise Agreement states that this provision may not be enforceable under California law. This means that if a Bonchon franchisee in California leaves the system, the enforceability of the non-compete clause is uncertain and subject to legal interpretation.
This uncertainty has significant implications for prospective Bonchon franchisees in California. While the franchise agreement includes a standard non-compete clause, its actual enforceability is questionable. This could affect a franchisee's ability to operate a similar business after leaving the Bonchon system. It also means that Bonchon may have difficulty preventing a former franchisee in California from competing, which could impact the brand's market share and competitive advantage in the region.
It is important for potential Bonchon franchisees in California to seek legal advice to fully understand the implications of this clause. They should discuss with an attorney the specific circumstances under which a non-compete agreement is likely to be enforced or not enforced in California. This will help them make an informed decision about investing in a Bonchon franchise and plan for their future business activities after the franchise term.
Furthermore, the California addendum also removes the "no-poach" clause within Section 12.02, preventing Bonchon from restricting a franchisee's ability to solicit or hire management personnel from Bonchon, its affiliates, or other franchised businesses without written permission. This modification provides California franchisees with more flexibility in staffing their restaurants.