What constitutes a prohibited conflict of interest for a Checkers franchisee (or their Operating Partner) regarding other business activities?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
I further agree that, during the term of my employment/service/association or ownership participation, I will not, directly or indirectly, engage or participate in any Competitive Business (defined below in this paragraph), any of which such prohibited behavior I understand and hereby explicitly acknowledge would or could be injurious to, or (in Franchisor's sole judgment) have an adverse effect upon, Franchisor's protectable interests in the Confidential Information, the "Checkers" trademark, or the goodwill and/or reputation of Restaurants generally. I agree that I am prohibited from engaging in any Competitive Business as a proprietor, partner, investor, shareholder, director, officer, employee, principal, agent, advisor, or consultant. For purposes of this Agreement, a "Competitive Business" means any business that: (i) operates as a restaurant or similar food-service provider and derives more than twenty percent (20%) of its revenue from selling hamburgers, cheeseburgers and hot dogs in a fast-food, quick-service, drive-thru or drive-in format; or (ii) grants franchises or licenses to others to operate the type of business specified in the preceding subparagraph (i) (other than a "Checkers" or "Rally's"branded restaurant operated under a franchise agreement with Franchisor). Despite the foregoing definition of a Competitive Business, nothing under this Agreement or the Franchise Agreement will prevent Individual from owning for investment purposes less than five percent (5%) of a Competitive Business whose stock or other forms of ownership interest are publicly traded on a recognized United States stock exchange, and so long as neither Individual nor Franchisee controls the company in question.
Source: Item 22 — CONTRACTS (FDD pages 91–92)
What This Means (2025 FDD)
According to the 2025 Checkers Franchise Disclosure Document, a franchisee (or their Operating Partner) is prohibited from engaging in any business that would be considered a conflict of interest. Specifically, a "Competitive Business" is defined as any business that operates as a restaurant or food-service provider deriving more than 20% of its revenue from selling hamburgers, cheeseburgers, and hot dogs in a fast-food, quick-service, drive-thru, or drive-in format. This also includes businesses that grant franchises or licenses to others to operate similar businesses, excluding other Checkers or Rally's franchises.
This restriction applies during the term of employment, service, association, or ownership participation with the Checkers franchise. The franchisee (or their Operating Partner) is prohibited from engaging in a Competitive Business as a proprietor, partner, investor, shareholder, director, officer, employee, principal, agent, advisor, or consultant. This broad definition aims to protect Checkers' confidential information, trademarks, and the goodwill and reputation of its restaurants.
However, there is an exception: owning less than 5% of a Competitive Business for investment purposes is permitted, provided the stock or ownership interests are publicly traded on a recognized United States stock exchange, and neither the individual nor the franchisee controls the company. This exception allows for minor investment without granting influence over a competing business.
This clause is fairly standard in the franchise industry, as franchisors want to prevent franchisees from using the knowledge and resources gained from the franchise to benefit a competing business. Prospective franchisees should carefully consider these restrictions and ensure they do not have any conflicting business interests before signing the franchise agreement.