Is there an exception to the non-competition covenant if the Buona franchisee operates a business under a franchise agreement with the Franchisor or its Affiliates?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
- 14.2 Non-Competition and Non-Solicitation During Term. Franchisee acknowledges that Franchisee will receive valuable, specialized training and the Confidential Information. Franchisee covenants that, during the Term, Franchisee and any of its shareholders, officers, directors, members, managers, partners and guarantors, shall not, either directly or indirectly, for itself or themselves or on behalf of, or in conjunction with, any other person or entity:
- (a) Divert or attempt to divert any business or customer of the Franchised Business to a Competitive Business (defined in Section 14.5) by direct or indirect inducements or otherwise, or to do or perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with the Marks and the System;
- (b) 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. However, this covenant shall not apply to any business operated by Franchisee under a franchise agreement with Franchisor or any of its Affiliates.
Source: Item 22 — CONTRACTS (FDD page 78)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, there is an exception to the in-term non-competition agreement if a franchisee operates a business under a franchise agreement with Buona or its affiliates. Specifically, during the term of the franchise agreement, the franchisee, including its owners, cannot have any interest in a business that offers similar products or services to a Buona Restaurant, unless it's through a franchise agreement with Buona. This exception allows franchisees to potentially operate multiple Buona locations or other franchised concepts under the Buona umbrella without violating the non-competition terms.
This exception to the non-competition agreement is only valid during the term of the franchise agreement. After the agreement expires or is terminated, the franchisee is subject to post-termination covenants that restrict their ability to engage in competitive businesses. The in-term non-competition agreement ensures that franchisees focus their efforts on the success of their Buona franchise and do not divert resources or knowledge to competing ventures.
This type of clause is relatively standard in franchising. Franchisors use non-competition agreements to protect their brand, trade secrets, and customer relationships. The exception for franchisees operating under another franchise agreement with the same franchisor is also common, as it allows for expansion and diversification within the franchise system. Prospective franchisees should carefully review the terms of both the in-term and post-termination non-competition agreements to understand the full scope of these restrictions and how they might impact their future business activities.