Can a Buona franchisee operate a Competitive Business under a franchise agreement with Buona or its affiliates during the term of the franchise?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
vailability is not because of a disclosure by you) and (b) disclosure of the Confidential Information in legal proceedings when you are legally required to disclose it and you have first given us the opportunity to obtain an appropriate legal protective order or other assurance satisfactory to us that the information required to be disclosed will be treated confidentially.
6.4 In-Term Non-Competition Agreement. You agree that we would be unable to protect the Confidential Information against unauthorized use or disclosure and would be unable to encourage a free exchange of ideas and information between you and us if you or your Owners were permitted to hold interests in any competitive businesses, as described below. You also acknowledge that we have entered into this Agreement with you in part in consideration of, and in reliance on, your agreement to deal exclusively with us. Therefore, during the term of this Agreement, neither you, nor any Owner, may, either directly or indirectly, for yourself or through, on behalf of, or in conjunction with, any person or legal entity, own, maintain, operate, engage in, consult with or have any interest in (as disclosed or beneficial owner) any business which offers products or services which are the same as, or similar to, those offered by a Buona Restaurant (other than through a franchise agreement with Franchisor), or any entity which is granting franchises or licenses for any business which offers products or services which are the same as, or similar to, those offered by a Buona Restaurant. (The ownership of five percent (5%) or less of a publicly traded Franchisor will not be deemed to be prohibited by this paragraph.) Further, during the term of this Agreement, you will not (1) divert customers or business from any Buona Restaurants to any other business or (2) hire any employees of ours or our affiliates.
7. DEFAULT AND TERMINATION
- 7.1 The right to open Buona Restaurants has been granted in reliance on your representations and warranties, and strictly on the conditions set forth in this Development Agreement including, without limitation, the condition that you comply strictly with the Development Schedule.
- 7.2 You shall be in default under this Agreement, and all rights granted herein to you shall automatically terminate without notice or an opportunity to cure if:
- (a) you are adjudicated bankrupt, become insolvent, commits any affirmative action of insolvency or files any action or petition of insolvency, or if a receiver (permanent or temporary) of your property or any part thereof is appointed by a court of competent authority, or if you make a general assignment for the benefit of its creditors;
- (b) if a final judgment against your business assets remains unsatisfied of record for thirty (30) days or longer (unless supersedeas bond is filed);
- (c) if execution is levied against your business or property;
- (d) if suit to foreclose any lien or mortgage against Developer's premises or business assets is instituted against you and not dismissed within thirty (30) days, or is not in the process of being dismissed;
Source: Item 22 — CONTRACTS (FDD page 78)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, a franchisee is restricted from owning or operating a competitive business during the term of their franchise agreement, unless it is through another franchise agreement with Buona itself. Specifically, neither the franchisee nor any owner can have any interest in a business offering similar products or services to a Buona Restaurant. An exception exists for owning five percent (5%) or less of a publicly traded franchisor.
This restriction is in place to protect Buona's confidential information and encourage a free exchange of ideas between the franchisee and franchisor. The agreement emphasizes that Buona entered into the agreement partly based on the franchisee's commitment to deal exclusively with them. This means a franchisee cannot divert customers or business from any Buona Restaurants to another business, nor can they hire employees of Buona or its affiliates.
After the franchise agreement expires or terminates, the franchisee and their owners are restricted from engaging in any Competitive Business within the Development Area or within a ten (10) mile radius of any existing Buona Restaurant for a period of two (2) years, unless they have a valid franchise agreement with Buona. A Competitive Business is defined as any retail establishment that derives more than ten percent (10%) of its gross sales from Italian beef and Italian sausage products and other Italian specialties. The ownership of two percent (2%) or less of a publicly traded Franchisor will not be prohibited after the franchise agreement expires or terminates.
These non-compete clauses are typical in franchising to protect the brand and prevent franchisees from using the franchisor's knowledge to directly compete against the system. Prospective franchisees should carefully consider these restrictions and how they might impact their future business opportunities before investing in a Buona franchise.