Does the Checkersrallys franchise agreement prohibit franchisees from engaging in a competitive business, and if so, are there any exceptions?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
You therefore agree that, during the Term and any successor franchise term, neither you, any of your Owners, nor any of your or your Owners' Immediate Family will (without our prior consent, which consent we may condition or withhold for any or no reason):
- (a) have any direct or indirect controlling or non-controlling ownership interest as an owner – whether of record, beneficially, or otherwise – in a Competitive Business, wherever located or operating (except that equity ownership of 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 will not be deemed to violate this subparagraph);
- (b) perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business, wherever located or operating;
- (c) divert or attempt to divert any actual or potential business or customer of any Restaurant to a Competitive Business; or
- (d) engage in any other activity which, in our sole opinion, might be injurious or prejudicial to the goodwill associated with the Marks or the System.
Source: Item 22 — CONTRACTS (FDD pages 91–92)
What This Means (2025 FDD)
According to the 2025 Checkersrallys Franchise Disclosure Document, franchisees and their immediate family members are restricted from involvement with competitive businesses during the term of the franchise agreement. A "Competitive Business" is defined as any restaurant or food-service provider deriving more than 20% of its revenue from selling hamburgers, cheeseburgers, and hot dogs in a fast-food format, or any entity that franchises or licenses others to operate such businesses. This restriction extends to various forms of participation, including ownership, service as a director, officer, manager, employee, consultant, or agent.
However, there is an exception: franchisees can own less than 5% of a publicly traded Competitive Business's stock, provided neither the franchisee nor an individual controls the company. This exception allows for minor investment purposes without violating the agreement. The agreement also specifies that franchisees must not divert business from any Checkersrallys Restaurant to a Competitive Business or engage in activities that could harm the goodwill associated with the Checkersrallys brand.
These covenants aim to prevent both direct and indirect competition, including consulting for or providing assistance to Competitive Businesses. The agreement is designed to protect Checkersrallys's interests in its system, customer base, confidential information, and brand reputation. Franchisees acknowledge that their skills can be used in other ventures outside of the restaurant or competitive business sectors, ensuring they can still earn a living after their relationship with Checkersrallys ends.