Does Chatime require franchisees to confirm they understand that violations of non-compete covenants by individuals with interest in the franchisee entity can lead to termination?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
Developer must ensure that any of its directors who are not a party to this Agreement, any Interested Party, manager and any of its key employees nominated by Franchisor enter into a confidentiality and non-competition agreement before they receive or are granted access to any of the Confidential Information. The agreements must contain a similar reasonable restraint as imposed pursuant to clause 7.
Developer 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 Developer and Guarantor pursuant to clause 7.2; and
- (2) Similar confidentiality obligations to the obligations imposed pursuant to clause 6, as and when required by Franchisor.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
Based on the 2025 Chatime Franchise Disclosure Document excerpts, there is no explicit requirement for franchisees to acknowledge that violations of non-compete covenants by individuals with interest in the franchisee entity can lead to termination. However, the document does outline non-compete obligations for the franchisee, interested parties, and related individuals.
Specifically, Chatime requires the developer to ensure that directors, interested parties, managers, and key employees enter into confidentiality and non-competition agreements. These agreements must contain reasonable restraints similar to those imposed on the developer. Additionally, Chatime can require any interested party to enter into a non-compete and confidentiality agreement with similar restraints and confidentiality obligations.
While the FDD excerpts detail the non-compete obligations and the mechanisms to enforce them, it does not state explicitly that franchisees must acknowledge that violations can lead to termination. A prospective franchisee should clarify with Chatime the specific consequences of violating these non-compete agreements, including the potential for termination, to fully understand their obligations and the potential ramifications.