Under the Chatime franchise agreement, can a franchisee act as a consultant to another business?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
The agreement by Developer Parties in clause 7.2 applies to any of them, the Interested Parties, and those acting:
- (1) In partnership or association with another person;
- (2) As principal, agent, representative, director, officer, employee, or financier;
- (3) As member, shareholder, debenture holder, note holder, or holder of any other security;
- (4) As trustee of or as a consultant or adviser to any person; or
- (5) In any other capacity.
7.4 Separate Restraint Agreements
Clauses 7.2 and 7.3 have effect as comprising each of the separate provisions which results from each combination of a capacity referred to in clause 7.3, a category of conduct referred to in clause 7.2, a geographical area specified in Schedule 1 and a period of time specified in Schedule 1. Each of these separate provisions operates concurrently and independently. If any separate provision is unenforceable, illegal or void that provision is severed and the other separate provisions remain in force.
7.5 Directors, Manager, and Key Employees
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, the franchise agreement places restrictions on a franchisee's ability to act as a consultant or advisor to another person. Specifically, clause 7.3 states that the restraints apply to those acting as a consultant or advisor to any person. This suggests that franchisees are generally restricted from providing consulting services to other businesses, especially those that might be competitive or related to the Chatime business model. This restriction extends to various capacities, including acting as a principal, agent, representative, director, officer, employee, or financier, and in partnership or association with another person.
Clause 7.4 further clarifies that these restraints operate independently, meaning that each capacity listed in clause 7.3 is considered a separate provision. If one provision is deemed unenforceable, illegal, or void, it is severed, and the remaining provisions remain in force. This ensures that the non-compete and confidentiality obligations are robust and enforceable to the maximum extent permitted by law.
However, these restraints do not apply to the continued operation of individual Chatime stores under a valid Franchise Agreement that has not been terminated and is not in default. This exception allows franchisees to focus on managing and growing their existing Chatime businesses without being unduly restricted. It is important for prospective franchisees to carefully review Schedule 1, which specifies the geographical areas and time periods to which these restraints apply, to fully understand the scope of these restrictions.