Does Checkers define the term 'Competitive Business' to include businesses that grant franchises or licenses to others?
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 Checkers' 2025 Franchise Disclosure Document, a 'Competitive Business' is defined to include businesses that grant franchises or licenses to others. Specifically, this applies to businesses that grant franchises or licenses to operate restaurants or similar food-service providers where more than 20% of their revenue comes from selling hamburgers, cheeseburgers, and hot dogs in a fast-food, quick-service, drive-thru, or drive-in format.
This definition has significant implications for prospective franchisees. During the term of their franchise agreement, franchisees are prohibited from engaging or participating in any such Competitive Business, whether as a proprietor, partner, investor, shareholder, director, officer, employee, principal, agent, advisor, or consultant. This restriction aims to protect Checkers' confidential information, trademarks, and the goodwill and reputation of its restaurants.
However, there is an exception: franchisees can own less than 5% of a Competitive Business if its stock is publicly traded on a recognized U.S. stock exchange, provided that neither the franchisee nor an individual controls the company. This exception allows for minor investment purposes without granting any control over a competing brand. This clause is designed to prevent franchisees from actively supporting or influencing competing fast-food chains while still allowing for minimal investment in publicly traded companies.