Does the definition of 'Competitive Business' for Checkersrallys include businesses that grant franchises or licenses to others?
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's 2025 Franchise Disclosure Document, a 'Competitive Business' does include businesses that grant franchises or licenses to others. Specifically, the FDD defines a Competitive Business as any business that either operates a restaurant deriving over 20% of its revenue from selling specific fast-food items, or grants franchises or licenses to others to operate such a business. However, this definition excludes Checkers or Rally's branded restaurants operated under a franchise agreement with Checkersrallys itself.
This definition has significant implications for prospective franchisees. It means that during their association with Checkersrallys, franchisees are restricted from engaging in or having certain interests in businesses that compete with Checkersrallys, including those that franchise similar concepts. This restriction extends to roles as a proprietor, partner, investor, shareholder, director, officer, employee, principal, agent, advisor, or consultant.
However, there is an exception: an individual can own less than 5% of a publicly traded Competitive Business for investment purposes, provided they do not control the company. This exception allows for minor investment in competing businesses without violating the agreement. Franchisees should carefully consider these restrictions and ensure they do not have any conflicting interests before entering into a franchise agreement with Checkersrallys.