Under what condition is a Chatime franchisee allowed to be concerned or interested in the Franchised Business?
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 generally prohibited from being concerned or interested in any business that is the same as or substantially similar to the Chatime franchised business. This restriction applies both during the term of the franchise agreement and for a specified period afterward. However, there is an exception: a franchisee is permitted to be concerned or interested in the Chatime franchised business in accordance with the franchise agreement itself.
Specifically, the franchisee can engage in the Chatime business as outlined and permitted within the bounds of their franchise agreement. This means that while franchisees cannot operate competing businesses or have interests in similar ventures, they are, of course, allowed to be fully involved in operating their own Chatime franchise as per the agreement's terms. This ensures that franchisees focus their efforts on their Chatime outlet and do not divert resources or attention to other competing businesses.
The FDD also specifies that these restrictions are designed to be reasonable and severable, meaning that if any part of the non-compete agreement is deemed unenforceable, the remaining parts will still be in effect. This protects Chatime's interests by preventing franchisees from using the franchisor's confidential information and business practices to benefit a competing business, both during and after the franchise term. The restrictions apply during the 'Restraint Period' within the 'Restraint Area' as defined in the agreement.