How is the liquidated damages amount calculated for a Caring Transitions franchisee who violates the non-compete agreement?
Caring_Transitions Franchise · 2025 FDDAnswer from 2025 FDD Document
Accordingly, if Franchisee breaches or fail to comply with any of the provisions of subparagraph 15.3(a), Franchisee shall pay Franchisor, as liquidated damages and not as a penalty, a royalty equal to 15% of the gross amount of all income, sales, salary, wages, fees, dividends, distributions, and other compensation received or earned by Franchisee, or any spouse, child, parent, or sibling of Franchisee or of any principal of Franchisee, or to which any of those parties becomes entitled, as the result of the breach or noncompliance.
The parties further agree that the royalty required by this paragraph is reasonable in light of the damages that Franchisor will incur.
This payment is not exclusive of any other remedies that Franchisor may have, including equitable remedies, attorneys' fees, and costs.
- (d) The time period referred to in subparagraph 15.3(a) will be stayed during any violation or breach of the terms thereof.
The covenants in this Section 15.3 will survive the expiration, termination, or transfer of this Agreement.
Source: Item 20 — OUTLETS AND FRANCHISEE INFORMATION (FDD pages 41–49)
What This Means (2025 FDD)
According to Caring Transitions' 2025 Franchise Disclosure Document, if a franchisee breaches the non-compete agreement, they must pay liquidated damages to Caring Transitions. This liquidated damages amount is calculated as a royalty equal to 15% of the gross amount of all income, sales, salary, wages, fees, dividends, distributions, and other compensation received or earned by the franchisee, or any spouse, child, parent, or sibling of the franchisee or of any principal of the franchisee, or to which any of those parties becomes entitled, as a result of the breach or noncompliance.
This payment is in addition to any other remedies that Caring Transitions may pursue, including equitable remedies, attorneys' fees, and costs. The non-compete agreement restricts the franchisee's ability to compete with Caring Transitions for a period of two years after the termination, expiration, or transfer of the Franchise Agreement within a specific geographic area. The time period of the non-compete will be extended during any violation or breach of its terms.
This clause highlights the importance of adhering to the non-compete agreement. A franchisee found in violation could face significant financial penalties, calculated as a percentage of all income derived from the competing activity, potentially impacting not only the franchisee but also their immediate family members involved in the breach. Prospective franchisees should carefully consider the scope and limitations of the non-compete agreement and ensure they understand the potential financial consequences of non-compliance.
It is important to note that the FDD states that the parties agree that the full extent of the damages that Caring Transitions will incur if Franchisee fails to comply with its obligations under this Section 15.3 is difficult to ascertain, but the parties nevertheless desire certainty in this matter. This indicates that the liquidated damages provision is intended to provide a clear and predictable financial consequence for violating the non-compete agreement, even though the actual damages to Caring Transitions may be hard to quantify precisely.