After the Carls franchise agreement expires, what is the radius around a Carl's Jr. Restaurant where a franchisee is restricted from operating a competing restaurant?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
Following the expiration, transfer or termination of this Agreement, this restriction shall apply to any restaurant business located within a 2 mile radius of the Franchised Location and any restaurant business within a 2 mile radius of any then-existing Carl's Jr.
Restaurant.
This restriction shall not apply to Franchisee's existing restaurant or foodservice operations, if any, which are identified in Appendix A, nor shall it apply to other restaurants operated by Franchisee that are franchised by CJR or its affiliates.
If any part of these restrictions is found to be unreasonable in time or distance, each month of time or mile of distance may be deemed a separate unit so that the time or distance may be reduced by appropriate order of the court to that deemed reasonable. If, at any time during the 2 year period following the expiration, Transfer or termination of this Agreement, Franchisee fails to comply with its obligations under this Section, that period of noncompliance will not be credited toward Franchisee's satisfaction of the 2 year obligation.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to the 2024 Carls FDD, following the expiration, transfer, or termination of the franchise agreement, a franchisee is restricted from operating a competing restaurant business within a 2-mile radius of the former franchised location. This restriction also applies to any restaurant business within a 2-mile radius of any then-existing Carl's Jr. Restaurant. This post-term restriction lasts for a continuous period of 2 years.
The definition of a competing restaurant is one that meets any of the following criteria: (i) whose sales of designated entrée items (hamburger sandwich, chicken sandwich, breakfast sandwich and any other entrée item of a type designated by CJR) during any daypart are reasonably likely to account collectively for 20% or more of the restaurant's sales of all entrée items during that daypart; (ii) that features or promotes any designated entrée item in its advertising; or (iii) that operates in a quick-service format (with or without table service).
This restriction does not apply to the franchisee's existing restaurant or foodservice operations, if any, which are identified in Appendix A, nor does it apply to other restaurants operated by the franchisee that are franchised by Carls or its affiliates. If any part of these restrictions is found to be unreasonable in time or distance, each month of time or mile of distance may be deemed a separate unit so that the time or distance may be reduced by appropriate order of the court to that deemed reasonable. If, at any time during the 2 year period following the expiration, Transfer or termination of this Agreement, Franchisee fails to comply with its obligations under this Section, that period of noncompliance will not be credited toward Franchisee's satisfaction of the 2 year obligation.
This type of restriction is common in franchising to protect the brand and prevent former franchisees from directly competing and leveraging the knowledge gained during their franchise term. Prospective franchisees should carefully consider the implications of this restriction, especially if they have other restaurant interests or plans for future ventures after the franchise agreement ends.