Is a Checkersrallys franchisee allowed to divert business from their restaurant to a Competitive Business?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
I specifically understand that, without limitation, all the above items, concepts, and/or examples contained in the preceding paragraph constitute Confidential Information of Franchisor, and I will not divert any business to competitors of Franchisee and/or Franchisor. I will at no time copy, duplicate, record or otherwise reproduce any of the Confidential Information or material containing it, in whole or in part, store them in a computer retrieval or database, nor otherwise make the them available to any unauthorized person.
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, franchisees are prohibited from diverting business to competitors. The agreement explicitly states that franchisees will not divert any business to competitors of the franchisee or franchisor. This restriction is part of a broader understanding that all items, concepts, and examples constituting Confidential Information of Checkersrallys cannot be copied, duplicated, or reproduced and made available to unauthorized persons.
Furthermore, during the term of the franchise, franchisees are restricted from engaging or participating in any Competitive Business, whether directly or indirectly, as a proprietor, partner, investor, shareholder, director, officer, employee, principal, agent, advisor, or consultant. A Competitive Business is defined as any business that operates as a restaurant or 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.
However, the agreement does allow for franchisees to own less than 5% of a Competitive Business for investment purposes, provided that the stock or ownership interests are publicly traded on a recognized United States stock exchange, and neither the individual nor the franchisee controls the company. This exception provides a limited allowance for investment without active involvement in a competing business. The restrictions are designed to protect Checkersrallys's confidential information, trademarks, and the goodwill and reputation of its restaurants.