During the Restraint Period, is a Chatime franchisee prohibited from advising a Restrained Business in the Restraint Area?
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 prohibited from advising a Restrained Business during the Restraint Period within the Restraint Area. The agreement specifies that the franchisee will not "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".
The FDD defines key terms relevant to this restriction. A "Restrained Business" is defined as a business that is the same as or substantially similar to the Franchised Business, or one that is engaged in retailing or supplying similar products or services. The "Restraint Area" includes the franchisee's territory, any area within twenty-five (25) miles from any Chatime store. The "Restraint Period" is a continuous two (2) year period starting from the expiration or termination date of the Franchise Agreement.
This non-compete clause extends beyond just direct involvement in a competing business. It also restricts a former Chatime franchisee from providing advice or assistance to such a business. This is a fairly standard practice in franchising to protect the brand's competitive advantage and prevent franchisees from using their knowledge gained during the franchise agreement to benefit a competitor.
However, the agreement also includes some exceptions. A franchisee is allowed to own less than 5% of securities in a listed corporation and engage in the Franchised Business in accordance with the Franchise Agreement. The franchisee can also engage in any business or activity that Chatime has given prior written consent to.