After the Checkersrallys franchise agreement terminates, is a franchisee prohibited from owning an interest in an entity that franchises a Competitive Business?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
Upon the expiration or other termination for any reason of my employment, association, service or ownership participation, I agree:
(i) to return immediately to Franchisor or Franchisee, as the case may be, all Confidential Information, and any material(s) containing a subset thereof, in my possession that was utilized, or to which I had access,
- during my employment, association, service or ownership participation;
- (ii) to refrain, beginning upon such expiration or termination and forever thereafter, from any and all contacts with customers of Restaurants for any purpose whatsoever; and
- (iii) for a period of two (2) years, starting on the effective date of termination or expiration of my employment/service/association or ownership participation, to refrain from directly or indirectly (such as through any one or more of my spouse, legally-recognized domestic partner, parents, children or sibling(s) (collectively, "Immediate Family")) owning a legal or beneficial interest in, or render services or give advice to: (a) any Competitive Business operating at the Premises or within a three (3)-mile radius of the Premises; (b) any Competitive Business operating within a radius of three (3) miles of any Restaurant in operation or under construction on the effective date of termination or expiration of my employment/service/association/ ownership participation; or (c) any entity which grants franchises, licenses or other interests to others to operate any Competitive Business.
Source: Item 22 — CONTRACTS (FDD pages 91–92)
What This Means (2025 FDD)
According to the 2025 Checkersrallys Franchise Disclosure Document, a former franchisee is restricted from owning an interest in an entity that franchises a Competitive Business for a period of two years after the termination or expiration of their franchise agreement. Specifically, for a period of two years, the franchisee must refrain from directly or indirectly owning a legal or beneficial interest in, or rendering services or giving advice to any entity that grants franchises, licenses, or other interests to others to operate any Competitive Business.
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, or any business that grants franchises or licenses to others to operate such a business. This restriction applies not only to the former franchisee but also extends to their Immediate Family, which includes their spouse, legally-recognized domestic partner, parents, children, or siblings.
This non-compete clause is designed to protect Checkersrallys's interests in its franchise system, customers, confidential information, and the goodwill associated with its trademarks. The agreement acknowledges that the franchisee possesses general skills and abilities that can be exploited in other ways, ensuring that the enforcement of these covenants will not deprive them of their ability to earn a living after the termination of their relationship with Checkersrallys. If a franchisee breaches this covenant, the two-year restriction period will be tolled during the period of the breach and will continue for two years from the date of the order enforcing the covenant.
This provision ensures that former franchisees and their immediate family members cannot leverage their knowledge and experience gained from operating a Checkersrallys franchise to benefit a competing business. Prospective franchisees should carefully consider the implications of this non-compete clause, especially if they have plans to invest in or work with other restaurant franchises after their Checkersrallys agreement ends.