Regarding Caring Transitions franchise agreements, are covenants not to compete upon termination or expiration generally enforceable in South Dakota?
Caring_Transitions Franchise · 2025 FDDAnswer from 2025 FDD Document
The Franchise Agreement to which this addendum is attached is amended as follows to comply with the South Dakota Franchise Act, South Dakota Codified Laws, Title 37, Chapter 37-5B:
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- Covenants not to compete upon termination or expiration of a franchise agreement are generally unenforceable in South Dakota, except in certain instances as provided by law.
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- In the event that either party shall make demand for arbitration, the arbitration shall be conducted in a mutually agreed upon site in accordance with Section 11 of the Commercial Arbitration Rules of the American Arbitration Association.
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- The law regarding franchise registration, employment, covenants not to compete, and other matters of local concern will be governed by the laws of the State of South Dakota; but as to contractual and all other matters, this Agreement and all provisions of this instrument will be and remain subject to the application, construction, enforcement, and interpretation under the governing law of the State of Ohio. Any provision in the franchise agreement restricting jurisdiction or venue to a forum outside of South Dakota or requiring the application of the laws of another state is void with respect to a claim otherwise enforceable under the South Dakota Franchise Act.
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- To the extent this addendum is inconsistent with any terms or conditions of the Franchise Agreement or exhibits or attachments thereto, the terms of this addendum shall govern.
Source: Item 22 — CONTRACTS (FDD page 49)
What This Means (2025 FDD)
According to Caring Transitions's 2025 Franchise Disclosure Document, covenants not to compete upon termination or expiration of a franchise agreement are generally unenforceable in South Dakota. However, there are exceptions as provided by law. This information is highlighted in the South Dakota Addendum to the Franchise Agreement, which amends the standard agreement to comply with the South Dakota Franchise Act.
This means that after the franchise agreement ends, a franchisee may not be legally bound by a non-compete clause, allowing them to operate a similar business in the same area. However, the statement that enforceability is subject to "certain instances as provided by law" introduces ambiguity. A prospective franchisee should seek legal counsel to understand the specific circumstances under which a non-compete might still be enforced.
Furthermore, while issues regarding covenants not to compete will be governed by the laws of South Dakota, contractual matters fall under the governing law of the State of Ohio. It is important to note that any provision restricting jurisdiction or venue to a forum outside of South Dakota or requiring the application of the laws of another state is void with respect to a claim otherwise enforceable under the South Dakota Franchise Act. This ensures that franchisees can pursue claims under South Dakota law within the state, despite the agreement's general choice of Ohio law for contractual matters.