For how long after the expiration, transfer, or termination of the Carls franchise agreement is the franchisee restricted from engaging in certain business activities?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
(2) Accordingly, Franchisee covenants and agrees that, except with CJR's prior written consent, during the term of this Agreement, and for a continuous period of 2 years following its expiration, transfer, or termination, Franchisee shall not, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with, any person, firm, partnership, corporation, or other entity:
(a) Divert or attempt to divert any business or customer, or potential business or customer, of any Carl's Jr.
Restaurant to any competitor, by direct or indirect inducement or otherwise.
- (b) Own, maintain, operate, engage in, grant a franchise to, advise, help, make loans to, lease property to, sell the property underlying the Franchised Location and related assets to, or have any interest in, either directly or indirectly, any restaurant business: (i) whose sales of Designated Entrée Items (as defined below) 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).
For purposes of the previous sentence, the term "Designated Entrée Items" means any hamburger sandwich, chicken sandwich, breakfast sandwich and any other entrée item of a type designated by CJR as part of the System at any time during the term of this Agreement.
During the term of this Agreement, there is no geographical limitation on this restriction.
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 Carls's 2024 Franchise Disclosure Document, a franchisee is restricted from certain business activities for two years following the expiration, transfer, or termination of the franchise agreement. Specifically, the franchisee cannot engage in activities that would divert business from a Carl's Jr. Restaurant to a competitor.
This restriction includes owning, operating, or having an interest in any restaurant business that meets certain criteria. These criteria include restaurants where sales of specific entrée items (like hamburger, chicken, or breakfast sandwiches) are likely to account for 20% or more of the restaurant's sales during any part of the day, restaurants that promote these items in their advertising, or restaurants that operate in a quick-service format. This restriction applies within a 2-mile radius of the former franchised location or any existing Carls Jr. Restaurant.
However, the restriction does not apply to the franchisee's existing restaurant or foodservice operations that are identified in Appendix A of the franchise agreement, or to other restaurants operated by the franchisee that are franchised by Carls or its affiliates. If any part of these restrictions is deemed unreasonable in terms of time or distance, the terms can be adjusted by a court to what is considered reasonable. Any period of noncompliance by the franchisee during this 2-year period will not count towards fulfilling the obligation.