Does Checkers place any restrictions on ownership interest in a Competitive Business during the term of the Checkers franchise agreement?
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, franchisees face restrictions on ownership interest in competitive businesses during the term of their franchise agreement. A "Competitive Business" is defined as any business that operates as a restaurant or food-service provider deriving over 20% of its revenue from selling hamburgers, cheeseburgers, and hot dogs in a fast-food, quick-service, drive-thru, or drive-in format, or any business that grants franchises or licenses to others to operate such a business (excluding other Checkers or Rally's franchises).
The agreement stipulates that during the term of employment, service, association, or ownership participation, franchisees are prohibited from directly or indirectly engaging or participating in any Competitive Business as a proprietor, partner, investor, shareholder, director, officer, employee, principal, agent, advisor, or consultant. This restriction is in place because such behavior could be harmful to Checkers' protectable interests in its confidential information, trademark, or the goodwill and reputation of its restaurants.
However, there is an exception: an individual may own less than 5% of a Competitive Business for investment purposes, provided that the stock or ownership interest is 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 in publicly traded competitors without violating the franchise agreement, as long as it remains a passive investment without any control over the competitive business.