Does the Bonchon franchise agreement contain a covenant not to compete that extends beyond the termination of the franchise?
Bonchon Franchise · 2025 FDDAnswer from 2025 FDD Document
nd comply with the confidentiality provisions of this Agreement. Your agreement to procure execution of our Confidentiality/Non-Competition Agreement from certain of your owners, and procure execution of our Confidentiality Agreement from your management and staff is set forth below in Section 12.05.
12.02 Covenant Not to Compete
You agree that (i) at any geographic location whatsoever during the Initial Term and any Successor Term of this Agreement, and (ii) within twenty miles of your Restaurant Location or within twenty miles of the Restaurant Location of any other franchised or company-owned Bonchon Business (regardless of how established or operated) for a period two years immediately following the later of (a) the termination, expiration or assignment (as defined in Section 14.02 below) of this Agreement or any Successor Agreement for any reason or (b) the date on which all persons restricted by this Section 12.02 begin to comply with this Section 12.02, you will not directly or indirectly engage in, aid, assist, serve or participate in any other business or activity which offers or sells (or grants franchises or licenses to third parties to operate businesses that offer or sell) Korean fried chicken or that serve chicken as a primary menu item (a "Competitive Business"). For the purposes of this Section, a business that serves chicken as a primary menu item is defined as a business that derives 25% or more of its gross revenues from selling chicken;.
You are prohibited from directly or indirectly engaging in any Competitive Business as a proprietor, partner, investor, shareholder, member, director, manager, officer, employee, principal, agent, advisor, consultant, lessor, sublessor or any similar capacity. In addition, you agree not to divert any business that should be handled by the franchised Business to any other person or entity. It is the intention of these provisions to preclude not only direct competition but also all forms of indirect competition, such as consultation for Competitive Businesses, service as an independent contractor for Competitive Businesses, or any assistance or transmission of information of any kind which would be of any material assistance to a competitor.
Source: Item 23 — RECEIPTS (FDD pages 92–536)
What This Means (2025 FDD)
Yes, according to Bonchon's 2025 Franchise Disclosure Document, the franchise agreement includes a covenant not to compete that extends beyond the termination, expiration, or assignment of the agreement. Specifically, for a period of two years after the termination, expiration, or assignment of the agreement, the franchisee is restricted from engaging in any business that offers or sells Korean fried chicken or serves chicken as a primary menu item within twenty miles of the former Bonchon Restaurant location or any other Bonchon location. A business is considered to serve chicken as a primary menu item if 25% or more of its gross revenues are derived from selling chicken.
This restriction applies regardless of the reason for termination, expiration, or assignment. The franchisee is prohibited from participating in a Competitive Business as a proprietor, partner, investor, shareholder, member, director, manager, officer, employee, principal, agent, advisor, consultant, lessor, or sublessor. The intent is to prevent both direct and indirect competition, including consulting or providing services to competing businesses.
However, the franchisee is allowed to own up to 5% of the capital stock of a publicly held Competitive Business for investment purposes only, provided they do not control the business and the stock is traded on a national or regional stock exchange. This post-term non-compete agreement is a standard practice in franchising to protect the brand and market share of the franchisor.