In the Chatime Franchise Agreement, is the term 'you' in the non-compete covenants defined broadly?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
2. NON-COMPETITION DURING AND AFTER THE RELATIONSHIP WITH FRANCHISEE
I agree that I shall not, and I will ensure that any person or entity which I control shall not:
- (a) be concerned or interested in any Restrained Business (directly or indirectly, or through any interposed corporate entity, trust, partnership, or entity as trustee, principal, agent, shareholder, beneficiary, or as an independent contractor, consultant, adviser or in any other capacity);
- (b) advise, assist, consult with or for or in connection with any Restrained Business or any person associated with or in any manner whatsoever connected to or engaged by or in connection with any Restrained Business;
- (c) hold or own (beneficially or non-beneficially) whether directly or indirectly and whether absolutely or contingently or hold options over shares or any other securities or units of any entity engaging in a Restrained Business; and
- (d) procure, employ, seek to employ or engage, or appoint in any capacity (whether as a consultant, director or otherwise), any person who is or has been in the 12 months prior to such action an employee or independent contractor of the Franchisor or any Chatime Store Business
during the Restraint Period in the Restraint Area.
Nothing in this Agreement, including this Section 3, prevents the Covenantor (or any of its affiliates) from:
- (a) owning less than 5%, by value, of securities in a listed corporation; or
- (b) engaging or being concerned or interested in the Franchised Business in accordance with this Agreement.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to the 2025 Chatime Franchise Disclosure Document, the non-compete covenants extend beyond just the franchisee ('I') to include entities they control. Specifically, the franchisee agrees to ensure that any person or entity they control also adheres to the non-compete terms. This means the restrictions apply not only to the franchisee as an individual but also to any business or organization they have authority over.
The non-compete agreement prohibits the franchisee and any entity they control from being involved in a 'Restrained Business,' which is defined as a business similar to the Chatime franchised business. This includes direct or indirect involvement, such as through a corporate entity, trust, partnership, or as a shareholder. It also restricts them from advising, assisting, or consulting with any Restrained Business or anyone connected to it.
Furthermore, the franchisee and their controlled entities are barred from holding shares or securities in any entity engaged in a Restrained Business and from employing or engaging anyone who has been an employee or independent contractor of Chatime or any Chatime store within the previous 12 months. There are limited exceptions, such as owning less than 5% of securities in a listed corporation, or engaging in the Franchised Business in accordance with the Franchise Agreement. These restrictions apply during the 'Restraint Period,' which is defined as two years following the termination or expiration of the franchise agreement, within the 'Restraint Area.' The Restraint Area includes the territory granted to the franchisee, any area within 25 miles of any outlet operated by the franchisee, and any area within 25 miles of any Chatime store.