During the Restraint Period, can a Chatime franchisee be concerned or interested in any Restrained Business in the Restraint Area, even indirectly through a corporate entity?
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, a franchisee is restricted from being concerned or interested in any Restrained Business during the Restraint Period within the Restraint Area, even indirectly through another entity. The agreement specifies that the franchisee must ensure that they, and any person or entity they control, do not engage in activities such as being concerned or interested in a Restrained Business directly or indirectly, advising or assisting a Restrained Business, holding shares in an entity engaging in a Restrained Business, or employing anyone connected to Chatime.
The FDD defines key terms to clarify the scope of these restrictions. A 'Restrained Business' is one that is the same as or substantially similar to the Franchised Business, or involved in retailing or supplying similar products or services. The 'Restraint Area' includes the 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. The 'Restraint Period' is a continuous two-year period starting from the expiration or termination date of the Franchise Agreement.
There are a few exceptions to these restrictions. A franchisee may own less than 5% of securities in a listed corporation or engage in the Franchised Business in accordance with the Franchise Agreement. The agreement also acknowledges that the restrictions are reasonable and severable, meaning that if any part of the agreement is deemed invalid, the rest of the agreement remains in effect. Franchisees should be aware of these non-compete obligations and how they might impact future business ventures after the franchise agreement ends.