After the Carls Jr. Development Agreement expires, what is the geographic scope of the restriction on owning or operating competing restaurant businesses?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
During the Development Term, there is no geographical limitation on this restriction.
Following the expiration, transfer or termination of this Agreement, this restriction shall apply within the Development Territory, within 2 miles of the border of the Development Territory and within a 2-mile radius of any then-existing Carl's Jr.
Restaurant.
This restriction shall not apply to Developer's existing restaurant or foodservice operations, if any, which are identified in Appendix B, nor shall it apply to other restaurants operated by Developer 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 expiration, Transfer or termination of this Agreement, Developer fails to comply with its obligations under this Section, that period of noncompliance will not be credited toward Developer's satisfaction of the 2 year obligation.
Source: Item 23 — RECEIPTS (FDD pages 76–364)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, following the expiration, transfer, or termination of the Development Agreement, a franchisee is restricted from operating a competing restaurant business within specific geographic boundaries. This restriction applies within the Development Territory, within 2 miles of the border of the Development Territory, and within a 2-mile radius of any then-existing Carls Jr. Restaurant. This non-compete clause extends for a continuous period of 2 years.
This restriction specifically targets restaurant businesses whose sales of "Designated Entrée Items" (including hamburger, chicken, and breakfast sandwiches, or any other entrée item designated by Carls Jr.) are reasonably likely to account for 20% or more of the restaurant's sales of all entrée items during any daypart. It also applies to businesses that feature or promote any Designated Entrée Item in their advertising or operate in a quick-service format, with or without table service.
However, the restriction does not apply to the franchisee's existing restaurant or foodservice operations, if any, that are identified in Appendix B of the Development Agreement. It also does not apply to other restaurants operated by the franchisee that are franchised by Carls Jr. or its affiliates. Carls Jr. also retains the right to reduce the scope of this covenant at its discretion with written notice to the franchisee.
It's important to note that if any part of these restrictions is found to be unreasonable in time or distance, the terms can be adjusted by a court. Additionally, any period of noncompliance by the franchisee during the 2-year restriction period will not be credited towards fulfilling the obligation.