During the Restraint Period, is a Chatime Developer Party prohibited from employing anyone who was an employee, independent contractor, or prospective franchisee of the Franchisor or any Chatime Store Business within the prior 12 months?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
2. NON-COMPETITION DURING AND AFTER THE RELATIONSHIP WITH FRANCHISEE
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, a Developer Party is restricted from employing or engaging anyone who was an employee, independent contractor, or prospective franchisee of Chatime or any Chatime Store Business within the 12 months leading up to such action. This restriction applies during the Restraint Period and within the Restraint Area.
The Restraint Period is defined as a continuous, uninterrupted period of two years starting from the expiration or termination date of the agreement. The Restraint Area includes the Territory, any area within 25 miles of any Chatime store, and any area within 25 miles of any outlet operated by the franchisee. This non-compete agreement extends to various capacities, including acting as a partner, agent, director, officer, employee, financier, member, shareholder, trustee, consultant, or advisor.
This clause aims to protect Chatime's interests by preventing former employees, contractors, or prospective franchisees from using their knowledge and experience gained from Chatime to benefit a competing business. However, this restriction does not prevent the Developer Party from owning less than 5% of securities in a listed corporation or engaging in the Franchised Business in accordance with the agreement. Prospective franchisees should carefully consider the implications of these non-compete clauses, especially if they have existing relationships with individuals in the quick-service restaurant industry.