What is the potential issue with the covenant not to compete extending beyond termination for Checkersrallys franchises in California?

According to Checkersrallys's 2025 Franchise Disclosure Document, there may be an issue with the enforceability of the covenant not to compete in California. Specifically, the FDD states that the franchise agreement and development agreement contain a covenant not to compete that extends beyond the termination of the franchise. However, the disclosure addenda for California states that this provision may not be enforceable under California law.

This means that if a Checkersrallys franchisee in California's franchise agreement is terminated, the standard non-compete clause that would prevent them from engaging with a competitive business after leaving the franchise might not hold up in court. This could allow a former franchisee to open a competing restaurant nearby or work for a competitor, even if the franchise agreement stipulates otherwise.

Prospective franchisees in California should be aware of this potential issue and seek legal counsel to understand their rights and obligations regarding the non-compete clause. They should discuss with their attorney the specific circumstances under which the non-compete might be unenforceable and what actions they can take to protect their interests. This is particularly important for franchisees who plan to operate in California and may want to remain in the restaurant business even after leaving the Checkersrallys system.