Is the non-competition covenant during the term of the Chatime franchise agreement subject to state law?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
| | These | These provisions are subject to state law | | | provisions | | | | are | | | subject | | | to | | | state | | | law | | MDA: §7.2(2) | Defined as a "Restraint Period" which is a period of | |-----------------|------------------------------------------------------------------------------------------------------------------| | | two years following the expiration or termination of | | | your Franchise Agreement in the "Restraint Area" | | | which is (i) your Territory, or (ii) any area within | | | twenty five miles of any Chatime Store. During the | | | Restraint Period, you and any guarantors will not (i) | | | engage or be concerned or interested in any business | | | within the Restraint Area that supplies products or | | | services the same or similar to those at any time | | | supplied by your franchise business or that could be | | | reasonably regarded as a market competitor of the | | | Chatime network or | | | any Store, (ii) canvass or solicit | | | any person who was a customer, employee, or | | | prospective franchisee of ours in the twelve months | | | prior | | | to | | | the | | | termination | | | or | | | expiration | | | of | | | your | | | MDA, | | | or | | | (iii) | | | employ | | | any | | | person | | | who | | | was | | | employed | | | by | | | us | | | or | | | any | | | other franchisee without first obtaining our written | | | consent. These provisions shall not apply to your | | | continued operation | | | of individual Chatime Stores under | | | valid Franchise Agreements which have not been | | | terminated | | | and | | | are | | | not | | | in | | | default. |
Source: Item 17 — Renewal, Termination, Transfer, and Dispute Resolution (FDD pages 43–52)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, the non-competition provisions within the Multi-Unit Development Agreement (MDA) are subject to state law. Specifically, the document defines a "Restraint Period" as two years following the expiration or termination of the Franchise Agreement within a defined "Restraint Area." This area includes the franchisee's territory or any area within twenty-five miles of a Chatime store.
During this Restraint Period, the franchisee and any guarantors are prohibited from engaging in any business that supplies similar products or services to Chatime, soliciting Chatime's customers, employees, or prospective franchisees, or employing individuals who were employed by Chatime or its franchisees without written consent. However, these restrictions do not apply if the franchisee continues to operate individual Chatime stores under valid and non-defaulted Franchise Agreements.
The FDD explicitly states that these non-competition provisions are subject to state law, meaning that the enforceability and specific terms of the covenant may vary depending on the state in which the franchise is located. Prospective franchisees should consult with legal counsel to understand the specific implications of these provisions in their state and how they may affect their ability to operate a similar business after the franchise agreement expires or is terminated.