Is the covenant not to compete in the Checkersrallys Franchise Agreement and Development Agreement, which extends beyond termination, always enforceable under California law?

According to Checkersrallys's 2025 Franchise Disclosure Document, the enforceability of the covenant not to compete, which extends beyond the termination of the franchise agreement or development agreement, is not guaranteed under California law. Specifically, Item 23 of the FDD notes that such provisions "may not be enforceable under California law." This means that if a Checkersrallys franchisee in California were to terminate their agreement and then engage in a competitive business, Checkersrallys might face legal challenges in enforcing the non-compete clause.

This uncertainty arises from California's general disapproval of restraints on trade, as reflected in its laws. While non-compete agreements can be enforceable under specific circumstances, such as the sale of a business, their application in franchise agreements is often scrutinized more closely. The FDD advises prospective franchisees to seek legal counsel to understand how California law would apply to these provisions, highlighting the importance of understanding local regulations.

For a prospective Checkersrallys franchisee in California, this means there's a risk that the non-compete agreement might not be fully enforceable. Conversely, if Checkersrallys were to try to enforce the non-compete agreement against a former franchisee in California, they might encounter legal challenges. This could affect the strategic decisions of both the franchisor and franchisee regarding post-termination activities and potential business ventures. Given this uncertainty, consulting with an attorney experienced in California franchise law is crucial to assess the specific implications and risks.