What is the definition of 'substantial management responsibility' in the context of prohibited business activities for a Checkers franchisee?
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, the term 'substantial management responsibility' is not explicitly defined. However, the FDD does address activities that a franchisee is prohibited from engaging in, specifically concerning competitive businesses.
The Checkers franchise agreement states that franchisees are prohibited from engaging in any 'Competitive Business' as a proprietor, partner, investor, shareholder, director, officer, employee, principal, agent, advisor, or consultant. 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 format, or that grants franchises or licenses to others to operate such a business. This restriction aims to protect Checkers' confidential information, trademarks, and the goodwill of its restaurants.
While the FDD outlines these restrictions, it does not provide a specific definition of 'substantial management responsibility.' A prospective franchisee should seek clarification from Checkers regarding what level of involvement in a competitive business would be considered a violation of the franchise agreement. Understanding this is crucial to avoid potential conflicts of interest and legal issues during the franchise term. It would be prudent to ask Checkers for examples of activities that would be considered 'substantial management responsibility' and those that would not.