Is a Checkersrallys franchisee allowed to perform services for a Competitive Business during the franchise term?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
confidentiality agreement), but in no event through any act of mine.
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.
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;
Source: Item 22 — CONTRACTS (FDD pages 91–92)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, franchisees are restricted from engaging in any Competitive Business during the term of their franchise agreement. 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. This restriction extends to roles as a proprietor, partner, investor, shareholder, director, officer, employee, principal, agent, advisor, or consultant.
The FDD specifies that this prohibition is in place to protect Checkersrallys's confidential information, trademarks, and the goodwill and reputation of its restaurants. The agreement aims to prevent both direct and indirect competition, including consultation or service as an independent contractor for Competitive Businesses, or any assistance or transmission of information that could materially aid a competitor. This obligation extends to anyone with a legal or beneficial interest in the franchisee, including family members and beneficiaries.
There is a limited exception: a franchisee can own less than 5% of a Competitive Business if its stock is publicly traded on a recognized United States stock exchange, provided that neither the franchisee nor the individual controls the company. This exception allows for minor investment purposes without granting any influence over the competing business. The agreement also acknowledges that the franchisee possesses general skills and abilities that can be exploited in ways other than operating a Checkersrallys restaurant or being involved in a Competitive Business, ensuring that the enforcement of these covenants does not deprive the franchisee of their ability to earn a living.
If a franchisee breaches these non-compete obligations, Checkersrallys is entitled to seek enforcement through judicial or arbitration proceedings. The period during which the covenant is breached will be added to the original term of the non-compete obligation, extending it for two years from the date of the enforcement order. This ensures that Checkersrallys's interests are protected even if a franchisee attempts to circumvent the non-compete agreement.