After leaving the Chatime system, can a former franchisee be concerned or interested in any Restrained Business within the Restraint Area?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
(57) Restraint Area means (a) the Territory, (b) any area within twenty five (25) miles from any Outlet operated by Franchisee, and (c) any area within twenty five (25) miles of any Chatime Store.
(58) Restrained Business means a business which is the same as or substantially similar to the Franchised Business, or engaged, concerned or interested in or carrying on any retailing or supplying of products or services the same as or substantially similar to the Products or Services offered by the Franchised Business or other Chatime Store Businesses.
(59) Restraint Period means a continuous uninterrupted period of two (2) years commencing on and from the expiration or termination date of this Agreement.
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 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.
(a) The covenants in this Agreement will have the effect as if they were several covenants consisting of:
(i) each separate covenant set out in Section 3, combined with;
(ii) each Restrained Business, combined with;
(iii) each Restraint Period, combined with;
(iv) each Restraint Area.
(c) I acknowledge and agree that each of the restrictions contained in this Agreement (i) is reasonable as to period, territorial limitation and subject matter; (ii) the restrictions in this Agreement are intended to help protect or preserve the Franchisee's and the Franchisor's legitimate business interests, including: (A) the Franchisor's relationship with other Franchisees; (B) the investment of the Franchisee in developing the Franchised Business and training its employees; (C) the investment of the Franchisor and its Affiliates in developing the Business System and training its Franchisees; (C) the revenue earned from the business conducted by the Franchisor and members of the Network; (D) the goodwill of the Franchised Business and the Franchisor; (E) the goodwill of other Chatime Store Businesses; (F) the ability for the Franchisor to appoint any person to operate the Franchised Business; and (iii) confers a benefit on the Franchisee and the Franchisor which is no more than that which is reasonably and necessarily required by the Franchisor for the maintenance and protection of the Franchisee and the Franchisor, the members of the Network, and the Business System.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to the 2025 Chatime FDD, a franchisee is restricted from being concerned or interested in a Restrained Business during the Restraint Period within the Restraint Area. A "Restrained Business" is defined as a business that is the same as or substantially similar to the Franchised Business, or engaged, concerned, or interested in or carrying on any retailing or supplying of products or services the same as or substantially similar to the Products or Services offered by the Franchised Business or other Chatime Store Businesses. The "Restraint Area" includes the Territory, any area within twenty-five (25) miles from any Outlet operated by Franchisee, and any area within twenty-five (25) miles of any Chatime Store. The "Restraint Period" is a continuous uninterrupted period of two (2) years commencing on and from the expiration or termination date of the Franchise Agreement.
Specifically, the franchisee agrees not to be concerned or interested in any Restrained Business directly or indirectly, or through any corporate entity, trust, partnership, or entity as trustee, principal, agent, shareholder, beneficiary, or as an independent contractor, consultant, adviser or in any other capacity. They are also prohibited from advising, assisting, or consulting with any Restrained Business or any person associated with it. Furthermore, they cannot hold or own shares or securities of any entity engaging in a Restrained Business.
However, there are exceptions to these restrictions. The franchisee is allowed to own less than 5% of securities in a listed corporation and engage or be concerned or interested in the Franchised Business in accordance with the Franchise Agreement. The FDD also states that the covenants in the agreement will have the effect as if they were several covenants consisting of each separate covenant set out in Section 3, combined with each Restrained Business, Restraint Period, and Restraint Area. This means that if any part of the non-compete agreement is deemed invalid or unenforceable, the remaining parts will still be in effect to the extent possible.
Chatime also emphasizes that these restrictions are reasonable and necessary to protect the legitimate business interests of both the franchisee and the franchisor. These interests include the relationship with other franchisees, the investment in developing the Franchised Business and training employees, the investment in developing the Business System and training franchisees, the revenue earned from the business, the goodwill of the Franchised Business and the Franchisor, the goodwill of other Chatime Store Businesses, and the ability for the Franchisor to appoint any person to operate the Franchised Business.