After the expiration, transfer, or termination of the Carls Jr. Development Agreement, for how long is the developer restricted from engaging in competitive activities without CJR's consent?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
(2) Accordingly, Developer covenants and agrees that, except with CJR's prior written consent, during the Development Term, and for a continuous period of 2 years following its expiration, transfer or termination, Developer 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 restaurant franchised or operated by CJR or its affiliates 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 real property underlying any 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).
Source: Item 23 — RECEIPTS (FDD pages 76–364)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, a developer is restricted from engaging in competitive activities for a period of two years following the expiration, transfer, or termination of the Development Agreement. Specifically, the developer cannot, without prior written consent from CJR (Carls Jr. Restaurants LLC), directly or indirectly engage in activities that divert business from any restaurant franchised or operated by CJR or its affiliates. This includes attempting to attract customers away from Carls Jr. to a competitor.
This restriction also extends to owning, operating, or having any interest in a restaurant business that competes with Carls Jr. This includes restaurants where 20% or more of sales come from 'Designated Entrée Items' during any part of the day, restaurants that promote these items in their advertising, or restaurants that operate in a quick-service format. The FDD specifies that these restrictions are in place to protect Carls Jr.'s trade secrets, confidential information, and the overall Carl's Jr. system.
The restrictions apply to the developer and all guarantors of the developer's obligations. For guarantors, the restriction lasts until two years after the agreement's expiration, transfer, or termination, or until they cease to hold certain positions within the company (such as Development Principal, officer, stockholder, director, member of the Continuity Group, or a 10% Owner). However, the restriction does not apply to ownership of less than 5% of the equity securities of a publicly held corporation.
Carls Jr. can seek an injunction to prevent any conduct that violates these restrictions, as a violation would cause immediate and irreparable harm for which money damages would not be an adequate remedy. This non-compete clause is a standard practice in franchising to protect the brand and prevent franchisees or developers from using the franchisor's knowledge and system to compete against them after the agreement ends.