Can a Checkers franchisee divert business to a Competitive Business?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
(c) divert or attempt to divert any actual or potential business or customer of any Checkers or Rally's-branded restaurant to a Competitive Business; or
(d) engage in any other activity which, in our sole opinion, might be injurious or prejudicial to the goodwill associated with the Marks or the System.
6.03 Procurement of Additional Covenants.
You agree to require and obtain the execution of a non-disclosure and non-competition agreement, as we may require at our sole discretion, from all of the following persons:
(a) Before employment or any promotion, your Operating Partner; and,
(b) If you are a business entity, all Owners with at least a ten percent (10%) direct or indirect legal or beneficial ownership interest in you; all of your officers, directors and managers; and, all persons possessing equivalent positions in any business entity which directly or indirectly owns and/or controls you.
You shall procure all such Nondisclosure and
Source: Item 23 — RECEIPTS (FDD pages 92–384)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, franchisees are explicitly prohibited from diverting business to a Competitive Business. The franchise agreement forbids franchisees from diverting or attempting to divert any actual or potential business or customer of any Checkers or Rally's-branded restaurant to a Competitive Business. A Competitive Business is defined as any business that operates as a restaurant or similar food-service provider and derives 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, or grants franchises or licenses to others to operate such a business (other than a Checkers or Rally's-branded restaurant).
This restriction is in place to protect the goodwill associated with the Checkers and Rally's brands and the integrity of the System. The franchise agreement also states that franchisees cannot engage in any activity that, in Checkers' sole opinion, might be injurious or prejudicial to the goodwill associated with the Marks or the System. This clause provides Checkers with broad discretion to determine what activities are considered harmful to the brand.
Furthermore, Checkers requires franchisees to obtain non-disclosure and non-competition agreements from their Operating Partner and, if the franchisee is a business entity, from all Owners with at least a 10% direct or indirect legal or beneficial ownership interest, as well as all officers, directors, and managers. These agreements must be executed and copies furnished to Checkers within specified timeframes, reinforcing the commitment to prevent competition and protect confidential information. This is a common practice in franchising to ensure that key personnel are also bound by non-compete obligations.
In practical terms, a Checkers franchisee must ensure that neither they nor their key personnel are involved in any competing business, and they must actively work to promote the Checkers brand and prevent any diversion of customers or business opportunities to other ventures. Failure to comply with these restrictions could result in a breach of the franchise agreement and potential legal consequences.