What are the reasonable restraints imposed on a Chatime franchisee, similar to those imposed on the Developer and Guarantor pursuant to clause 7.2?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee must procure that any Interested Party specified by Franchisor enters into a noncompete and confidentiality agreement with Franchisor that contains:
- (1) Similar reasonable restraints as imposed on Franchisee and Guarantor pursuant to clause 9.2; and
- (2) Similar confidentiality obligations to the obligations imposed pursuant to clause 8,
as and when required by Franchisor.
9.7 Acceptable Conduct
Nothing in this clause prevents Franchisee or Guarantor from:
- (1) Owning less than 5%, by value, of securities in a listed corporation;
- (2) Engaging or being concerned or interested in the Franchised Business in accordance with this Agreement; or
- (3) Engaging or being concerned or interested in any business or activity pursuant to which Franchisor has given its prior written consent.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, franchisees are subject to certain reasonable restraints similar to those imposed on developers and guarantors, as outlined in clause 7.2 of the agreement. These restraints extend to the franchisee, their 'Interested Parties,' and anyone acting in various capacities such as partners, agents, directors, employees, or financiers. This broad scope ensures that individuals associated with the franchisee are also bound by the non-compete and confidentiality obligations.
The agreement specifies that these restraints apply to conduct in any capacity, whether acting alone or in association with others, and covers various roles within a business or as a consultant. This comprehensive approach aims to prevent individuals connected to the franchisee from engaging in activities that could harm Chatime's interests. The restraints are structured as separate provisions that operate concurrently and independently, meaning that if one provision is deemed unenforceable, the remaining provisions still hold.
Chatime also requires that the franchisee ensures that their directors (who are not party to the agreement), managers, key employees, and any Interested Parties nominated by Chatime, enter into confidentiality and non-competition agreements. These agreements must contain similar reasonable restraints as those imposed on the franchisee and guarantor, along with confidentiality obligations. However, these restraints do not prevent the franchisee or guarantor from owning less than 5% of securities in a listed corporation, engaging in the franchised business as per the agreement, or participating in any business activity with Chatime's prior written consent.
These measures are typical in franchising to protect the brand's market position, trade secrets, and customer relationships. Prospective Chatime franchisees should carefully review these restrictions to understand the full scope of their obligations and how they might impact their future business activities. Understanding the definitions of terms like 'Restraint Area' and 'Restrained Business' is crucial for compliance and avoiding potential breaches of the franchise agreement.