During the Restraint Period, what activities are Chatime franchisees prohibited from doing in the Restraint Area regarding Restrained Businesses?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
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 Chatime's 2025 Franchise Disclosure Document, during the Restraint Period and within the Restraint Area, a franchisee is restricted from engaging in activities related to a Restrained Business. The Restraint Period is defined as a continuous, uninterrupted two-year period starting from the date the Franchise Agreement expires or terminates. The Restraint Area includes the franchisee's territory, any area within twenty-five miles of any outlet operated by the franchisee, and any area within twenty-five miles of any Chatime store. A Restrained Business is one that is the same as or substantially similar to the franchised Chatime business, or involved in retailing or supplying similar products or services.
The specific activities Chatime franchisees are prohibited from doing during the Restraint Period in the Restraint Area include being concerned or having an interest in any Restrained Business, whether directly or indirectly. This encompasses involvement through any corporate entity, trust, partnership, or as a trustee, principal, agent, shareholder, beneficiary, or in any capacity such as an independent contractor, consultant, or advisor. Franchisees are also barred from advising, assisting, or consulting with any Restrained Business or any person associated with such a business.
Furthermore, Chatime franchisees cannot hold or own shares or securities in any entity engaged in a Restrained Business, whether directly or indirectly. They are also prohibited from employing, seeking to employ, or engaging anyone who has been an employee or independent contractor of Chatime or any Chatime store business within the 12 months prior to such action. However, these restrictions do not prevent a franchisee from owning less than 5% of securities in a listed corporation or engaging in the franchised Chatime business in accordance with the Franchise Agreement.
These non-compete covenants are designed to protect Chatime's legitimate business interests, including relationships with other franchisees, investments in developing the franchised business and training employees, and the goodwill of the Chatime brand. The agreement acknowledges that the restrictions are reasonable in terms of period, territorial limitation, and subject matter, and that they confer a benefit on both the franchisee and Chatime, ensuring the maintenance and protection of the network and business system.