During the term of the franchise, can a Checkers franchisee have an ownership interest in a Competitive Business?
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's 2025 Franchise Disclosure Document, franchisees are restricted from engaging or participating in any Competitive Business 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 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 whether the franchisee acts as a proprietor, partner, investor, shareholder, director, officer, employee, principal, agent, advisor, or consultant.
This restriction aims to protect Checkers's confidential information, trademarks, goodwill, and reputation. The franchise agreement explicitly acknowledges that engaging in a Competitive Business could harm Checkers's protectable interests. However, there is an exception: a franchisee can own less than 5% of a Competitive Business if its stock or ownership interests are publicly traded on a recognized United States stock exchange, provided that neither the franchisee nor the individual controls the company.
For a prospective Checkers franchisee, this means they must avoid any active involvement or significant ownership in competing fast-food businesses during their franchise term. The franchisee must disclose any existing interests in potential Competitive Businesses in their franchise application. This clause ensures that franchisees remain dedicated to the Checkers system and do not divert resources or knowledge to competing ventures. It is a fairly standard clause in franchise agreements to prevent conflicts of interest and protect the brand's market position.