Does the Chem Dry franchise agreement prohibit franchisees from soliciting existing customers of the Chem Dry business to divert business to a Competitive Business?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
ANCHISEE acknowledges and agrees that CDI would be unable to protect the Confidential Information against unauthorized use or disclosure if franchisees of CHEM-DRY Businesses were permitted to hold interests or otherwise participate in or promote any Competitive Business (as defined below).
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- FRANCHISEE therefore agrees that during the term of this Agreement, neither FRANCHISEE, nor any Owner, manager, officer, partner or director of FRANCHISEE, if an Entity, and any of their respective spouses and adult offspring shall:
- a. have any direct or indirect controlling or non-controlling 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 two percent (2%) of a Competitive Business whose shares or other forms of ownership interest are publicly traded on a recognized United States securities exchange will not be deemed to violate this subparagraph);
- b. perform services as a director, officer, manager, employee, consultant, contractor, representative, or agent for a Competitive Business, wherever located or operating;
- c. solicit any existing customer of the BUSINESS, or any party to whom or which the BUSINESS has communicated for the purpose of marketing the services of the BUSINESS, in order to divert or attempt to divert any actual or potential business or customer of the BUSINESS to a Competitive Business or any other business; or
- d. engage in any other activity which might injure the goodwill of the Marks and Franchise System.
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- The term "Competitive Business" as used in this Agreement shall mean any business which provides, sells or grants franchises or licenses to others to provide or sell, carpet or upholstery/drapery cleaning services or products, tile and stone care services or products, spot removal, applying anti-allergen and deodorizer, or protective services or products, Approved Services, or any related or ancillary services or products.
7. INDEMNIFICATION
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to the 2024 Chem Dry Franchise Disclosure Document, Chem Dry franchisees are prohibited from soliciting existing customers of the Chem Dry business to divert business to a Competitive Business during the term of the agreement. A "Competitive Business" is defined as any business that provides or sells carpet or upholstery cleaning services, tile and stone care, spot removal, or related services. This restriction applies not only to the franchisee but also to any owner, manager, officer, partner, or director of the franchisee, as well as their respective spouses and adult offspring.
This non-solicitation clause is designed to protect Chem Dry's confidential information and goodwill. The franchise agreement specifically states that Chem Dry would be unable to protect its confidential information if franchisees were allowed to participate in or promote a Competitive Business. This restriction ensures that franchisees remain focused on growing their Chem Dry business and do not use their access to Chem Dry's customer base to benefit a competing business.
Furthermore, the Chem Dry franchise agreement also includes a covenant not to compete that extends for two years after the termination or expiration of the agreement. During this period, franchisees are prohibited from soliciting business from customers of the Chem Dry business for any Competitive Business purpose. This post-term restriction applies within the franchisee's territory, any Chem Dry business territory, or within a 10-mile radius of the franchisee's territory. This comprehensive approach aims to prevent franchisees from leveraging their knowledge and relationships gained during their time with Chem Dry to unfairly compete with the franchise system after they leave.