Is there an exception to the non-competition covenant if the business is operated under a franchise agreement with Buona or its affiliates?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee covenants that Franchisee and any of its shareholders, officers, directors, members, managers, partners and guarantors, either directly or indirectly, for itself or themselves or on behalf of, or in conjunction with, any other person or entity, regardless of the cause for termination shall not:
- (a) For a period of two (2) years following the expiration or termination of this Agreement, have any ownership interest in, maintain, operate, engage in, serve as a director, officer, manager, employee, consultant or representative of, grant a franchise to, advise, help, make loans to, lease property to, or have any interest in, directly or indirectly, a Competitive Business that is located within a radius of ten (10) miles of (i) the location specified in the Approved Site Location Addendum as described in Article I or (ii) the location of any other Buona Business, whether owned by Franchisor or any other Buona franchisee, in existence as of the date of expiration or termination of this Agreement.
This restriction will not apply to the ownership of less than 2% of the outstanding shares of a publicly-traded security.
Franchisee and its officers, directors, shareholders, managers, members, partners and guarantors expressly acknowledge that they possess skills and abilities of a general nature and have other opportunities for exploiting those skills.
As a result, adherence to this restriction will not deprive them of their personal goodwill or ability to earn a living.
Source: Item 23 — RECEIPTS (FDD pages 78–356)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, a franchisee and its related parties are restricted from engaging in a Competitive Business within a 10-mile radius of their Buona location or any other Buona location for two years after the franchise agreement expires or terminates. However, this restriction does not apply to owning less than 2% of a publicly-traded security.
This non-compete agreement ensures that former Buona franchisees do not directly compete with existing Buona businesses, protecting the brand's market share and goodwill. The agreement extends not only to the franchisee but also to their shareholders, officers, directors, members, managers, partners, and guarantors, preventing them from circumventing the restriction through other entities or individuals. The FDD states that these individuals acknowledge they possess general skills and abilities and have other opportunities for exploiting those skills, so the restriction will not deprive them of their personal goodwill or ability to earn a living.
Prospective franchisees should carefully consider the implications of this non-compete clause, especially if they have significant experience or resources tied to the restaurant industry. Understanding the scope and duration of the restriction is crucial for planning their future business endeavors after leaving the Buona system. Franchisees should seek legal counsel to fully understand the enforceability and potential impact of the non-compete agreement in their specific circumstances.