According to the agreement, what constitutes a 'Competitive Business' for Checkersrallys?
Checkersrallys 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 Checkersrallys' 2025 Franchise Disclosure Document, a 'Competitive Business' is defined as any business that operates as a restaurant or similar 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 definition also includes businesses that grant franchises or licenses to others to operate similar restaurants, excluding other Checkers or Rally's branded restaurants franchised by Checkersrallys.
This definition has significant implications for prospective franchisees. During the term of the franchise agreement, franchisees are prohibited from engaging in any Competitive Business as a proprietor, partner, investor, shareholder, director, officer, employee, principal, agent, advisor, or consultant. This restriction is in place to protect Checkersrallys' confidential information, trademarks, and the goodwill and reputation of its restaurants.
However, the agreement does allow for a limited exception: franchisees can own less than 5% of a publicly traded Competitive Business for investment purposes, provided that neither the franchisee nor any related individual controls the company. This exception acknowledges that franchisees may want to diversify their investments without actively participating in a competing business.
These restrictions are typical in franchise agreements to protect the franchisor's market position and proprietary information. Prospective Checkersrallys franchisees should carefully consider these limitations and ensure they do not have any existing interests in businesses that could be considered competitive. Understanding these restrictions is crucial before entering into a franchise agreement with Checkersrallys.